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The Billion Dollar Wallet
24 July 2015
Digital Marketplace Digital Wallet
E - Commerce Financial Services Government Push Telecom Infra
Ecosystem Enablers- Propelling Digital Marketplaces & Payments
Poised for Growth- The Paytm Advantage
Executive Summary – Is Paytm a Billion Dollar Wallet?
$82bn market by 2020E
– Rising online shopping
penetration
Changing Payments Landscape
– Shift from offline to online
payments (~86bn by 2020)
Driving Internet penetration
– Low data tariffs,
– Affordable smartphones
Promoting Digital & Cashless Economy
– Introduction of Payment Banks
– Digital India, Jan Dhan Yojna
E-Tailing ($47bn) Cash Driven Market Electronic Payments ($23bn) Online Travel ($18bn)
Largest Internet Market
~850mn people < 35 years
Growing Mobile net usage
240mn user ~60% via mobile
Underbanked Population
~ 900mn unbanked
Smartphone Dominance
~ 80% growth in shipments
Money on the Move
Wallets > Credit Cards
Unique India - Setting the stage to go Mobile
Alibaba alliance: +1mn
Chinese merchants &
+10mn SKUs
Payments Bank access unbanked
population; higher average ticket size
Reduce COD enable
wallet payments on delivery
Strategic partnerships with IRCTC,
Uber, Makemytrip capture
substantial travel related flows
Is Paytm worth a Billion Dollars?
Hurdle rate of 35% &
EV/GTV multiple of 2x Business Growth (Bottom Up)
Valuation: $5.5bn
Market Estimation (Top Down)
Valuation: $5.7bn
Paytm’s valuation will be in the range of $5.5bn - $5.7bn
2
Unique India - Setting the stage to go Mobile Almost a billion people own mobile phones, cash is still king and large swathes of the population have no formal bank
account which sets the stage for mobile payments to become a critical part of the Indian Economy.
850 Million
Youngest, Most Diverse Economy in the World
68% of the population under the age of 35
Key target market for internet companies
20% Internet
penetration
Growing Mobile Internet Usage
243 Million internet users
~ 60% via mobile
~80% of incremental internet usage from mobiles (since 2012)
30% Banked
Underbanked population
Only 400mn people in India have bank accounts.
Jan Dhan Yojna: 125mn accounts &111mn debit cards issued (~60% previously unbanked)
80% Y-o-Y Growth
Smartphones on the road to market dominance
Smartphone shipments grew by 80 per cent Y-o-Y in 2014 to reach 79 million units.
Cheapest 3G handsets are available for as low as $40
60% COD sales
Cash is KING
60% of Indian e-commerce transactions are COD (vs. 30% in China and 2% in US)
Wallets > Credit Cards
Money on the Move – Wallet revolution
20mn credit cards outstanding vs. 50mn registered users for Paytm (India’s largest mobile
wallet firm)
Avg. monthly value transacted on credit cards in 2014- $2.2bn
Source: CIA Fact book, IAMAI, CNNIN, comScore, RBI, Holisol Logistics, Ministry of Finance, News articles (including The Economic Times, Business Standard), Goldman Sachs Global Investment Research.
3
Ecosystem Enablers – Propelling Digital Marketplaces & Payments
Wallets (56% CAGR) driving growth in online payments 3
Source: IAMAI, CNNIN, comScore, RBI, Ministry of Finance, News articles (including The Economic Times, Business Standard), Goldman Sachs Global Investment Research.
Government Initiatives facilitating Mobile India 4
Spectrum Devices
Post auction - spectrum
available to enable pan-India
3G coverage.
National optical fiber network
expected to cover 250k
villages by Dec 2016
Cheapest 3G/4G handsets -
US$40/150
4G ecosystem in China
supply of 4G handsets in India
Fiber / Towers Tariffs
9% Fiber coverage and 25%-
30% 3G/4G coverage currently
Capex by telcos and Govt’s
Digital India ramp up
capacity and coverage
Data tariffs reduced by 20% in
the past 2 years
Introduction of 4G by RJio/
telcos reduce data tariff
further in the next 3 years
$69
$20
$26
$15
$23
$22 $33
$52
$90
$112
$133
$155
$0.7
$0.8
$1.0
$1.3
$1.6
$1.8
$2.0
$0.0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
$1.6
$1.8
$2.0
$2.2
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
2014 2015E 2016E 2017E 2018E 2019E 2020E
Tran
sact
ion
Fee
s (i
n $
bn
)
Elec
tro
nic
Pay
men
t V
alu
e (i
n $
bn
)
Others Wallets
Net Banking Debit Cards
Credit Cards Cash
Transaction Fees
Evolving Telecom Infra driving Internet penetration 1 $82bn E-Commerce market by 2020E (CAGR 30%) 2
$47 $15
$21
$32
$45
$56
$69
$82
2%
4%
6%
8%
9%
11%
12%
0%
2%
4%
6%
8%
10%
12%
$0
$20
$40
$60
$80
$100
$120
$140
2014 2015E 2016E 2017E 2018E 2019E 2020E
Pen
etra
tio
n (
as a
% o
f p
op
ula
tio
n)
Mar
ket
Size
($
bn
)
Others
Digital Ad Spend
Online Travel
E-Tailing
Online Shoppers Penetration (%)
Driven by growing data & online shopper penetration (E-tailing ~66% of market)
55% Online Payments (vs 43% currently); Wallets share – 15% by 2020E
Online Payments
43%
55%
Low data tariffs & affordable smartphones increasing mobile internet usage
Initiative Opportunity Impact
Payment
Bank
Licenses
Allow deposits up to Rs.100k,
issuance of debit cards and
other financial offerings
Growth in mobile wallets,
payment gateways
Digital India
Initiative
Broadband in 250k villages;
Universal mobile connectivity;
Public Wi-Fi Hotspots
Increased mobile internet
usage Growth in M-
commerce
Jan Dhan
Yojna
Opened 125mn bank accounts
and issued 111mn debit cards
since Aug 2014
Increase target market for
e-commerce & promotes
cashless transactions
Government
Channels
IRCTC – largest online portal
India Post – logistics partner for
e-tailers like Amazon & Flipkart
Deepen reach of e-
commerce to semi-urban
& rural areas.
4
Digital Marketplace Digital Wallet
– 50 Million wallets
– Limit of INR 10,000/ wallet
– 40,000 Merchants
– GMV of $1.5bn
E - Commerce Financial Services Regulatory Push Telecom Infra
Ecosystem Enablers
Revenue Streams
Utility
Payments Recharges /
Bill Payments
Partner Sites
/ Merchants
Money
Transfer
Transaction fee
of 2% - 3%
Transaction fee
of 7% - 10%
Paytm – Leveraging a Billion Digital Users
– $82bn in GMV by 2020E
– Rising online shopping
penetration
– 60% transaction are COD
– Shift from offline to online
payments
– $86bn electronic payments
by 2020E
– 80% Y-o-Y growth in
smartphone shipments
– 3G/4G connectivity
– Low data tariffs
– Introduction of Payment Banks
– Liberalization of Mobile
Banking, Payment Ecosystem
– Digital India, Jan Dhan Yojna
India is expected to have 1 Billion people online by 2030, setting the stage for exponential growth in E-Commerce and
evolution in the payments landscape with an addressable market of US$300bn (~2.5% of GDP) in 2030E
Source: IAMAI, RBI, Ministry of Finance, News articles (including The Economic Times, Business Standard), Goldman Sachs Global Investment Research. 5
Paytm – Poised to capitalize on the Digital India growth story Paytm is well placed to leverage the mobile driven digital growth given its ability to aggregate merchants via m-
marketplaces, debottleneck the m-commerce experience via wallets, and strategic merchant partnerships.
Opportunity The Paytm Advantage
E-Tailing:
$47bn market by 2020E (vs $7bn
currently)
Integrated shopping and payment mechanism
Alliance with Alibaba to add 1mn Chinese merchants and 100mn SKUs by December 2016
Electronic Payments:
$2bn in revenue by 2020E from
electronic payments processing
Setting up as a payment bank will enable penetration into the unbanked population of
900mn
Enhanced customer trust and ease of payments for small ticket items
Cash driven Market:
60% of all e-commerce
transactions are COD
Pure marketplace model – eliminates shipping costs substantial savings vs competitors
Ability to reduce COD transactions by enabling wallet payments on delivery – access to
consumer base of competitors (Flipkart, Amazon, Snapdeal etc)
Online Travel Market :
$18bn market by 2020E (vs $8bn
currently)
Strategic partnerships with merchants facilitates ability to capture substantial travel related
flows.
Partnership with IRCTC deepens reach to Tier II and Tier III consumers
Partnership with UBER and Make My Trip increases access to the car travel market, airline
market and hotel market.
Leverage access across sectors to provide end – to – end connectivity for travelers.
6 Source: IAMAI, CNNIN, comScore, RBI, Ministry of Finance, News articles (including The Economic Times, Business Standard), Goldman Sachs Global Investment Research.
Paytm Valuation – What is the wallet worth? Growth has been estimated basis the growing E-commerce market along with expected changes in the payments
landscape. The impact of regulatory initiatives and strategic partnerships has also been considered.
Assumptions 2014 2015E 2016E 2017E 2018E 2019E 2020E
Customers Growth Rate 150% 75% 38% 19% 9% 5%
FX Rate 60.00 60.00 60.00 60.00 60.00 60.00 60.00
Discount Rate (Hurdle Rate) 35% 35% 35% 35% 35% 35% 35%
Wallet
Customers (% of total) 100% 100% 100% 100% 100% 100% 100%
Avg Transaction Value (Growth Rate) 70% 35% 18% 9% 4% 2%
Avg no of transaction- Annual (Growth Rate) 30% 50% 25% 13% 6% 3%
Avg Transaction Fees (%) 3.0% 2.5% 2.0% 1.5% 1.4% 1.4% 1.3%
Marketplace
Customers (% of total) 5% 15% 19% 21% 22% 23% 24%
Avg Transaction Value (Growth Rate) 80% 40% 20% 10% 5% 3%
Avg no of transaction- Annual (Growth Rate) 30% 36% 14% 6% 3% 1%
Avg Transaction Fees (%) 8.5% 8.0% 7.5% 6.0% 5.8% 5.5% 5.3%
Assumption Rationale
Time Period Consolidation noticed in E-commerce industry, expect growth to stabilize in 5-7 years
Customers Growth Rate
High growth till 2018 driven by increasing data & online shoppers penetration, leveraging strategic partnerships and
regulatory initiatives; market matures 2019 onwards – growth rate stabilizes
Marketplace customers < Wallet customers due to division of customers among other e-tailers like Amazon, Flipkart etc.
Discount Rate Average PE/ VC hurdle rate of 30%-40% based on recent exits in the Indian market. PE/ VC hurdle rate assumed due to
substantial capital infusion by such firms
Average Transaction Value &
Average no. of Transactions
IAMAI, RBI, Ministry of Finance, Goldman Sachs research reports, News Articles
Higher growth rates for wallets due to the government propelling evolution of banking and payments landscape.
Average Transaction Fees IAMAI, News Articles ; Expected to fall in the short term due to increased competition; will stabilize once market
consolidates and matures 2019 onwards
Industry EV/GTV multiple Transaction Comparable multiple for Flipkart, Snapdeal who have raised funding basis EV/GTV multiple of 2x-3x as per
News Articles 7
With an estimated Gross Transaction Value of $11.4bn in 2020, hurdle rate of 35% and a comparable transaction
multiple of 2x , Paytm is worth $5.5bn
Calculations 2014 2015E 2016E 2017E 2018E 2019E 2020E
No of Customers (Mn) 20 50 88 120 143 156 164
Wallet
Customers (Mn) 20 50 88 120 143 156 164
Avg Transaction Value (INR) 100 170 230 270 293 306 313
Avg no of transaction- Annual 2 3 4 5 5 6 6
Avg Transaction Fees (%) 3.0% 2.5% 2.0% 1.5% 1.4% 1.4% 1.3%
Marketplace
Customers (Mn) 1.0 7.5 16.4 24.8 31.8 36.5 39.4
Avg Transaction Value (INR) 600 1,080 1,512 1,814 1,996 2,096 2,148
Avg no of transaction- Annual 2.0 2.6 3.5 4.0 4.3 4.4 4.5
Avg Transaction Fees (%) 8.0% 7.5% 7.5% 6.0% 5.8% 5.5% 5.3%
Average Revenue per User (ARPU in Rs) Rs 102 Rs 222 Rs 419 Rs 459 Rs 513 Rs 531 Rs 528
Wallet - Gross Transaction Value ($ Bn) $0.1bn $0.4bn $1.3bn $2.6bn $3.8bn $4.6bn $5.1bn
Marketplace - Gross Transaction Value ($ Bn) $0.0bn $0.4bn $1.5bn $3.0bn $4.5bn $5.6bn $6.3bn
Gross Transaction Value[GTV] ($ Bn) $0.1bn $0.7bn $2.8bn $5.7bn $8.4bn $10.3bn $11.4bn
Industry EV/GTV Multiple 2x
Enterprise Value (EV) $22.8bn
Discount Factor 1.00 0.74 0.55 0.41 0.30 0.22
Present Value of Enterprise Value (as on 30 June 2015) $5.5bn
Paytm Valuation – What is the wallet worth?
8
9
With an estimated 13% share of the $47bn E-tailing market and a 25% share of the $23bn Wallet based payments in
2020, a hurdle rate of 35% and a comparable transaction multiple of 2x , Paytm is valued at $5.7bn
Paytm Valuation – Market Estimation Approach
In 2020E Wallet
Payments E-Tailing Source/ Assumptions
Market Size ($bn) $23bn $47bn IAMAI, RBI, Goldman Sachs Research Reports
Expected Market Share (%)
25% 13%
Expecting 4-5 big players in the industry after consolidation (Market Share of 10%-
30%)
Market Leader in Wallet Payments hence 25% market share
E-Tailing dominated by Flipkart, Amazon & Snapdeal but Alibaba alliance expected to
increase market share ( expected top 5 concentration ~80%)
Gross Transaction Value ($bn) $5.83bn $5.88bn
Total Gross Transaction Value ($bn) $11.7bn
EV/GTV Multiple 2x Transaction Comparable multiple for Flipkart, Snapdeal who have raised funding basis
EV/GTV multiple of 2x-3x as per News Articles
Exit Valuation ($bn) $23.4bn
Discount Rate 35% Average PE/ VC hurdle rate of 30%-40% based on recent exits in the Indian market.
PE/ VC hurdle rate assumed due to substantial capital infusion by such firms
Exit Valuation (as on 30 June 2015) $5.7bn Discounted till 30 June 2015
Basis the Market Estimation Approach (Top Down) and the Business Growth Approach (Bottom Up),
Paytm’s valuation will be in the range of $5.5bn - $5.7bn
