Paytm: Elevation Capital’s massive gamble on Paytm backfires

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Elevation Capital, the largest institutional shareholder in One 97 Communications– owner of digital payments brand Paytm– is staring at a massive erosion in the worth of its holding, amid a free-fall in the shares of the beleaguered company following the regulatory ban on its payment bank operations that comes into effect on March 15.

The Ravi Adusumalli-led fund’s 15% stake in One 97, which was valued at about Rs 6,100 crore when the post-IPO lock-in expired in November 2022, had shrunk by nearly 40% to Rs 3,800 crore at the end of trading on Thursday.

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Following the Reserve Bank of India’s directive on Paytm Payments Bank, which was announced on January 31, the stock price of One 97 Communications has declined by nearly 50% triggering a sharp decline in investor wealth.

Elevation, which is also an early investor in unicorn startups such as Swiggy, Urban Company, Unacademy and Meesho, has not sold any Paytm stock after completion of the mandatory lock-in period following a public listing.

Also read | Paytm Payments Bank customers can use basic services till March 15

Eroding value of Paytm investor wealth_Feb 2024_Graphic_ETTECH

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“Elevation’s notional gains would be shaved off dramatically after the RBI ruling, but they entered the company so early that they will still be in the positive. However, it won’t be the kind of outcome they were expecting from the company,” a top venture investor said, speaking to ET on the condition of anonymity.

Elevation, which has marked a near 17-year journey Paytm, did not respond to detailed emailed queries on the matter.

Also read | ED has not yet found forex breaches at Paytm unit, source says

The marquee investment firm, which is a long standing backer of Paytm founder Vijay Shekhar Sharma, cut its first cheque in his company way back in 2007, when One 97 was still a value-added services player. It has since invested around Rs 500 crore to Rs 520 crore in the company across various avatars, according to Paytm’s IPO documents.

To be sure, Elevation sold shares worth over Rs 2,000 crore at the time of One 97’s Rs 18,300-crore IPO in November 2021 but the early stage venture firm has since not made any further transactions in its holdings.

In contrast, other marquee investors including Japan’s SoftBank, China’s Alibaba and Ant Financial as well as Berkshire Hathaway have either partially or fully exited their stakes in the Noida-based company. Masayoshi Son‘s SoftBank now holds less than 5% in the payments firm compared to 18.5% at the time of IPO, while China’s Ant Financial’s stake is 9.8%, both these global companies have been offloading their stake in One 97 in the open market.

Billionaire investor Warren Buffet’s Berkshire Hathaway, which invested Rs 2,200 crore in Paytm in 2018, has fully exited its holding in the Indian firm last November after booking a loss of around Rs 630 crore.

SoftBank, which invested $1.6 billion in Paytm through primary and secondary deals, has so far sold $1-1.1 billion worth of stake in the Noida-headquartered company. It expects to get another $200 million-$250 million at full exit, booking a loss of around 15-20% on its investment in the company, industry watchers said.

On Thursday, One 97 Communications’ stock closed at Rs 388.20 on the BSE, 1.8% down from its previous ending. The company’s market capitalisation at this share price was over Rs 24,000 crore, or nearly $3 billion. On January 31, the share’s closing price was Rs 761 apiece.

Long-term bet gone sour

Ant Financial, which is a group company of Chinese ecommerce giant Alibaba, transferred 10.3% stake in One 97 Communications to Sharma, in August 2023, through an intricately structured deal that gave the founder higher control over the company.

A Mumbai-based analyst with a global brokerage firm said that RBI’s move against Paytm Payments Bank has “completely changed the thesis” for investors. “Earlier there was a view, at least in the longer term…that the company will grow and become profitable on the back of its fintech stack through payments and lending,” the analyst said.

“But by losing on Paytm Payments bank it loses a key strength…this could translate into higher spends on customer acquisition and retention to compete with deep-pocketed rivals such as Google Pay, PhonePe on the user side and Pine Labs on the merchant side…to recover from hereon is a difficult path,” he added.

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