- Walmart will offload 9% of PhonePe, keeping control while Microsoft and Tiger Global exit completely.
- The offering is a pure offer‑for‑sale – no fresh capital, meaning the proceeds go straight to sellers.
- Regulation 6(2) filing signals the company still misses SEBI’s profitability thresholds, raising valuation questions.
- Sector peers (Paytm, Razorpay, Google Pay) are racing for market share; any pricing misstep could reshape the competitive hierarchy.
- Historical Indian fintech IPOs have shown wide price volatility; timing and book‑building will be decisive.
Most investors skim the fine print on sell‑side IPOs. That’s where the real upside—or trap—hides.
PhonePe's Offer‑for‑Sale Mechanics and What They Mean for Valuation
The updated draft red‑herring prospectus, dated January 21, outlines a pure offer‑for‑sale of up to 5.06 crore shares. No new equity will be issued, so the cash raised will flow directly to the exiting shareholders—Walmart (4.59 crore shares), Microsoft (36.8 lakh shares) and Tiger Global (10.39 lakh shares). Because the company isn’t raising fresh capital, the balance sheet stays unchanged, preserving existing leverage ratios. For investors, the key metric becomes the price at which these existing shares are sold. A low price band could indicate that sellers are eager to cash out, potentially depressing market perception of PhonePe’s growth runway. Conversely, a tight, higher band would suggest strong demand and confidence in the underlying business. Regulation 6(2) of SEBI’s ICDR rules applies when a firm does not meet the standard profitability thresholds. In practice, this pathway allows companies with high revenue but negative earnings to list, provided they disclose sufficient risk factors. PhonePe’s reliance on this clause flags that its EBITDA is still in the red—a common trait among fast‑growing Indian fintechs, but a red flag for value‑oriented investors.
Sector‑Level Trends: Why the Payments Space Is a Double‑Edged Sword
India’s digital payments volume is projected to cross $1 trillion by 2027, driven by UPI’s network effects, smartphone penetration, and a young, cash‑averse demographic. PhonePe, a UPI‑centric app, has captured roughly 35 % of UPI transaction value, positioning it just behind Google Pay and Paytm. However, the sector is tightening on two fronts:
- Regulatory scrutiny: The RBI is tightening data‑sharing norms and mandating higher capital reserves for payment aggregators, which could pressure margins.
- Competitive pricing wars: Rival apps are subsidizing merchant acquisition and offering cash‑back to users, eroding per‑transaction profitability.
Competitive Landscape: How Tata, Adani, and Other Giants React
While PhonePe prepares its exit, the broader Indian fintech battlefield is heating up. Tata Group’s Paytm (formerly One97 Communications) is pushing into financial services beyond payments, launching Paytm Payments Bank and expanding into wealth‑management. Adani’s recent acquisition of a stake in Paytm Mall signals a vertical integration play that could siphon merchant traffic. Both Tata and Adani have been quietly building proprietary payment layers, which could dilute PhonePe’s merchant network if they secure exclusive deals with large retail chains. On the flip side, PhonePe’s parent, Walmart, brings a global logistics and retail perspective that could foster cross‑border commerce partnerships—something neither Tata nor Adani currently possess. From a valuation standpoint, peers that have already listed (e.g., Paytm’s volatile post‑IPO price swings) serve as cautionary tales. Paytm’s debut saw a 30 % drop in the first week, then a rebound driven by aggressive cost cuts. The lesson for PhonePe is clear: pricing discipline and post‑IPO cost discipline will be the litmus test for long‑term credibility.
Historical Context: What Past Indian Fintech IPOs Teach Us
Looking back, three notable fintech IPOs provide a roadmap:
- Paytm (2021): Listed at ₹2,150 per share, fell to ₹1,500 within days, then recovered after a strategic focus on payments bank earnings.
- PolicyBazaar (2022): A pure offer‑for‑sale that raised only seller proceeds; its stock stayed flat for months as investors awaited clear profitability.
- Cred (2023): Utilized Regulation 6(2); the share price oscillated wildly, reflecting market uncertainty about a loss‑making credit‑tech platform.
Key Definitions for the Non‑Technical Reader
Offer‑for‑Sale: Existing shareholders sell shares directly to the public; the company does not receive cash. Regulation 6(2) ICDR: A SEBI provision allowing companies that are not yet profitable to list, provided they disclose risks. Book‑building: The process where underwriters collect investor interest to determine the final price band before allocation.
Investor Playbook: Bull vs. Bear Cases
Bull Case:
- Price band set at the higher end, reflecting strong institutional demand.
- Walmart retains a controlling stake, signalling confidence in long‑term strategy.
- UPI growth outpaces competition, allowing PhonePe to monetize network effects via value‑added services (e‑wallet, lending).
- Potential strategic partnership with Walmart’s e‑commerce ecosystem could unlock new revenue streams.
Bear Case:
- Low pricing band due to seller urgency; market perceives the exit as a lack of confidence.
- Continued regulatory pressure squeezes margins, keeping the firm loss‑making.
- Intensifying cash‑back wars erode unit economics, requiring deeper capital infusions that are not being raised.
- Competitors like Tata’s Paytm and Adani‑backed platforms capture key merchant relationships.
For risk‑averse investors, a short‑term tactical play—selling into the IPO if the price band tilts low—may be prudent. For growth‑focused allocators, taking a modest stake post‑pricing can capture upside if PhonePe successfully leverages Walmart’s global reach and the UPI tide lifts all boats.