PhonePe all set to raise $1 billion from Private Equity funds

India’s most valuable fintech and digital payment brand today is not Paytm. Ironically, PhonePe, which is part of the Wal-Mart group of the US, is almost thrice as valuable as Paytm in the market cap stakes. Paytm, unfortunately, saw a lot of value destruction post its listing last year and consistent cash burn, weak profits, regulatory challenges and market pressures have taken a toll on Paytm valuations. With Paytm valued at a tad above $4 billion; PhonePe with an indicative valuation of $13 billion is almost 3 times more valuable. Now, to further its aggressive growth ambitions in the Indian digital payments market, PhonePe is planning to raise close to $1 billion from existing PE investors.

PhonePe already has a roster of marquee Private Equity (PE) investors who have participated in its capital. It has shown a lot of aggression of late, especially in tapping the onboarding of merchants through the audio instruments. That had been a traditional stronghold of Paytm, but things appear to have changed rapidly in a competitive scenario. Now PhonePe is seeking to raise as much as $1 billion from some of its existing PE investors including General Atlantic Partners, Tiger Global, Qatar Investment Authority and Microsoft Corporation. It would be interesting to see how successfully PhonePe is able to raise the funds and at what valuations, especially amidst the global digital funding crunch.

The equity fund raising by PhonePe will be by placing additional shares with existing investors of the company. It may also look to rope in some new investors into its fold. While valuations are yet to be firmed up, the indications are that PhonePe would be seeking an indicative fund raising of closer to $1 billion or Rs. 8,200 crore at a valuation of $13 billion or Rs. 106,600 crore. PhonePe is already the most valuable digital payments franchise in India and their enthusiasm about the potential in India is not misplaced. Boston Consulting Group has forecast global digital payments marketplace to triple in size from the current $3.5 trillion to $10 trillion by 2026. That is an incredible growth in the next four years.

Incidentally, PhonePe is also looking to best leverage its lateral relationships. India’s largest ecommerce company, Flipkart, is also part of the Wal-Mart fold. It is well known that the Softbank Vision Fund of Masayoshi Son has a significant stake in Flipkart. PhonePe would be looking to rope in the Softbank Vision Fund also as a potential investor in PhonePe, considering the awesome potential of digital payments in India. However, Softbank has been looking to globally cut down on its digital exposures and that would make the participation rather doubtful to begin with, especially amidst its huge portfolio losses.

For PhonePe, the first priority is to stave off competition. It is up against two players with a strong digital footprint and deep pockets. Yes, are referring to GPAY, which is part of the Google fold, and Amazon Pay, which is also getting aggressive in the Indian digital payments space. Of course, Paytm continues to be a formidable play in the Indian market and its customer franchise is still unmatched. However, PhonePe may be closest to seeing profits in its core business. For the previous fiscal, its revenues grew 140% at Rs1,650 crore while the losses narrowed by about 15%, which is a very encouraging signal for any digital company.

PhonePe also has aggressive IPO plans, but that is not likely to happen in the near future. AT best, the IPO may take another 18 months to 24 months and looking at the way players like Paytm and others have got battered in the stock markets, PhonePe may even prefer to stick to its core strategy of raising funds through the PE route. Also, Phone will now come directly under Wal-Mart, rather than being part of Flipkart. PhonePe boasts of about 41.5 crore registered users and 3 crore registered merchants around India as of last month. That is a great platform to start with as it embarks on its fund raising journey.