Walmart-backed PhonePe targets valuation of up to $10.5 billion in Indian IPO: report

Walmart-backed Indian fintech company PhonePe, the country’s most widely used payments platform, is targeting a valuation between $9 billion and $10.5 billion, two people with direct knowledge of the matter said.That suggests the IPO will raise about $900 million to $1.05 billion. But even at the high end, the deal would mark a cut from the $12 billion valuation at which PhonePe last raised $100 million in private markets in 2023.

Walmart will reduce its stake in PhonePe by about 12% in the company’s initial public offering, while Tiger Global and Microsoft plan to withdraw their stakes, the company’s IPO shows.The three companies will sell approximately 50.7 million shares under the offering and PhonePe will not issue any new shares.

PhonePe, which competes with Google Pay and Paytm in India, filed for its initial public offering in September and aims to complete the process in April, one of the sources said, although the timeline could shift depending on capital market conditions, including any fallout from the conflict in the Middle East.

Both sources requested anonymity because the discussions are confidential. PhonePe, Walmart, Tiger Global and Microsoft did not immediately respond to emails seeking comment.

The expected valuation of PhonePe, which means ‘on the phone’ in Hindi, and the timing of the issuance have not been previously reported. PhonePe’s listing would make it India’s second-largest fintech IPO after Paytm’s roughly $20 billion listing in 2021.

Paytm currently trades at a market cap of $7.1 billion.

‘MONETIZATION REMAINS A QUESTION MARK’
PhonePe has more than 650 million registered users and processed nearly 10 billion of the 21.7 billion transactions on the Indian Payments Interface (UPI) in January, regulatory data showed. But payments in India remain a low-margin business.

India launched UPI in 2016 and banned companies from charging for the instant payment service to boost digital payments and reduce the use of cash in Asia’s third-largest economy.

PhonePe’s losses widened to 14.44 billion rupees ($158 million) in the six months ended September 30 from 12.03 billion rupees a year ago, while revenue rose about 22% to 39.18 billion rupees, the company’s IPO showed.

Two portfolio managers, who met the company’s management during pre-IPO roadshows, said excitement around the country’s fintech sector had cooled and there were lingering questions about PhonePe’s ability to monetize its user base – a key reason why the company may not reach a valuation closer to its latest funding round.

“Revenue generation remains a question mark. Active users are not growing at the same pace, so the game is all about upselling and that remains to be seen,” said one of the portfolio managers.

Investors also view the Indian fintech market as overcrowded, with little differentiation among players, said a third source, a banker on the matter.

These sources also spoke on condition of anonymity as they were not authorized to speak to the media.