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💰 Square to buy Afterpay for $29 billion
PolicyBazaar files for Rs 6,017-crore IPO
Online insurance platform PolicyBazaar has become the fifth startup after Zomato, Paytm, Mobikwik and CarTrade to begin the process of listing on Indian stock exchanges.
Driving the news: PolicyBazaar parent PB Fintech has filed a draft red herring prospectus (DRHP) with the markets regulator, the Securities and Exchange Board of India (Sebi), to raise Rs 6,017 crore through an IPO.
Details: The firm will raise Rs 3,750 crore by issuing new shares and the remaining Rs 2,267 crore ($305 million) through a secondary sale of shares via an offer for sale (OFS).
- PB Fintech is also in talks with its book running lead managers to raise around Rs 750 crore through a private placement of equity shares ahead of the IPO.
Financials: Losses for the Gurugram-based firm narrowed to Rs 150 crore in FY21 from Rs 304 crore in FY20 and Rs 346 crore in FY19, according to the company’s IPO documents. Total income jumped to Rs 957 crore in FY21,from Rs 855.6 crore in FY20 and Rs 528.8 crore in FY19.
Where will the money go? Of the Rs 3,750 crore PolicyBazaar seeks to raise from the issue:
■ Rs 1,500 crore will be used to improve the visibility and awareness of its brands including PolicyBazaar and Paisabazaar through marketing initiatives over the next three fiscals. The company spent Rs 367.8 crore on advertising and promotion expenses in FY21, down from Rs 445.2 crore in FY20.
■ Rs 375 crore will be spent on new opportunities to expand its consumer base, including physical expansion initiatives. Last month, Policybazaar surrendered its web aggregator licence and acquired an insurance broking licence from the Insurance Regulatory and Development Authority of India (IRDAI). This will allow the company to set up its physical network while also significantly expanding its product and service offerings.
PB Fintech said it expects to incur substantial costs in setting up and operating these physical retail outlets and its point-of-sale purchase network. The firm has already set up 15 physical offices as of July 15, and aims to have up to 200 retail outlets by the end of fiscal 2024.
■ Rs 600 crore will be spent on strategic investments and acquisitions that are complementary to its business to improve its product and service capabilities, establish or strengthen its presence in domestic and overseas markets, and gain access to technology.
■ Rs 375 crore will go towards expanding its presence outside India, especially in regions such as the Middle East and Southeast Asia. The company currently operates in Dubai through a subsidiary.
PolicyBazaar will be the second big firm in Info Edge’s portfolio to go public after Zomato, which had a blockbuster public market debut last month.
Pushback from legacy firms: News of the IPO comes at a time when several incumbents in India’s legacy insurance industry, including the largest private sector general insurer ICICI Lombard and public sector behemoth Life Insurance Corporation of India, have either partially or completely refrained from listing their products with third-party online brokers.
HDFC Ergo also recently delisted its products from online marketplaces, including PolicyBazaar, we reported on Monday.
Meanwhile, online travel app ixigo has added six new independent members to its board ahead of its proposed IPO.
The new members include former IRCTC managing director and chairman Mahendra Pratap Mall, former Nasscom foundation chairman Arun Seth, GSF Accelerator founder Rajesh Sawhney, banking and insurance sector veteran Shubha Rao Mayya, Hopper Inc founder Frederic Lalonde, and Hamstede Living MD & CEO Rahul Pandit.
Last week, Ixigo had raised $53 million (Rs 395 crore) from investors led by Singapore’s sovereign wealth fund GIC.
Tax woes for early investors in unicorn IPOs
The spate of unicorn IPOs in India is bringing with it tax complications for some large investors in these firms.
What’s the problem? Early investors in companies such as Paytm, Mobikwik, Policybazaar and Zomato could face between 10% and 15% tax on the bonus issue of shares. Tax experts say they may have to cough up a significant chunk of their realised gains.
Why was it done? The majority of these companies will issue bonus shares to lower the price once they are listed. These shares, even those issued to existing foreign investors, will be treated as fresh shares and will be taxable despite grandfathering* of the old treaty, said Girish Vanvari, founder of tax advisory firm Transaction Square.
*Jargon check: A grandfathering clause is a provision in tax laws through which an old regulation continues to apply to some existing situations while a new rule applies to all future cases. India amended tax treaties — Double Tax Avoidance Agreement (DTAA) — with Singapore and Mauritius in 2016 and 2019, respectively. Unlike the older treaties, the new ones include short-term capital gains tax at 15% and 10%. However, the government had allowed grandfathering benefits while amending these tax treaties.
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Zomato to offer unlimited free deliveries with Pro Plus
Online food delivery service Zomato is looking to shore up its paid-member base with a new ‘limited edition’ membership plan that will offer unlimited free deliveries for chosen users.
- All Zomato Edition Black credit card holders will automatically be upgraded to this membership programme, chief executive Deepinder Goyal said. Others, including existing Zomato Pro members, will need to purchase the upgrade from the app, he said.
Zomato launched its paid membership programme Zomato Gold as a dining out service in 2017 and renamed it to Zomato Pro in June 2020, making it an all-encompassing membership across dining out and delivery. On Monday, Goyal said there are now 1.8 million Pro members, up from 1.5 million on March 31.
Why is Zomato doing this? While the food delivery business has bounced back from the impact of the pandemic, dining out is yet to recover, with lockdowns continuing in many places. In the company’s IPO prospectus, the company said that the number of customers buying Zomato Pro subscriptions also fell significantly as a result of the pandemic.
The company generated revenue of Rs 57.5 crore from its subscription product in FY21, down from Rs 87.9 crore in FY20.
But… the price? What’s not clear though is the pricing of this service. Zomato Pro membership is currently available in two tiers — Rs 300 for 3 months or Rs 750 for a year. The company claims to have over 25,443 Pro restaurant partners in India as of March 31.
Rival Swiggy also revamped its paid membership programme Swiggy Super in March, after launching it in 2018 and suspending it in May 2020. Since the revamp, it has stopped offering annual plans and now offers three different plans — Bit, Bite, and Binge — available on a monthly or a three-month basis.
Square to buy Afterpay for $29 billion
Square, the digital payments firm of Twitter cofounder Jack Dorsey, has acquired Australian payments firm Afterpay in a $29 billion all-stock deal to create a global online payments giant.
Started in 2014, Afterpay is a pioneer of the ‘buy now, pay later’ business model that lets customers pay for their purchases in interest-free installments. It went public in 2016 and claims to have served more than 16 million consumers and nearly 100,000 merchants around the world as of June 30.
30% premium: The buyout, which is based on Square’s July 30 closing price of $247.26, values Afterpay around A$126.21 per share, a 30.6% premium over its latest closing price of A$96.66. After the deal is completed, Afterpay shareholders are expected to own around 18.5% in the combined company on a fully diluted basis.
Square said it will undertake a secondary listing on the Australian Securities Exchange to allow Afterpay shareholders to trade in shares via CHESS depositary interests, a payment instrument that allows foreign companies to list their shares on the Australian exchange and use its settlement systems.
Payday: Afterpay founders Anthony Eisen and Nick Molnar will pocket A$2.46 billion apiece, while Chinese tech giant Tencent, which had picked up a 5% stake in the firm for about A$300 million last year, will get about A$1.7 billion.
What’s the plan? Square plans to integrate Afterpay into its existing Seller and Cash App businesses, enabling small merchants to offer ‘buy now, pay later’ at checkout, giving Afterpay users the ability to manage their installment payments from the Cash App, and allowing Cash App customers to discover merchants and BNPL directly from the app.
Square financials: Square saw a more than 143% jump in its revenues to $4.68 billion for the quarter ended in June, up from $1.92 billion in the same period last year. Excluding bitcoin revenue, net revenue was $1.96 billion, up 87% year-on-year.
Cash App generated $2.72 billion of bitcoin revenue and $55 million of bitcoin gross profit during the second quarter of 2021, each up about 3x year-on-year.
Mphasis to focus on ‘four pillars of growth’
Mphasis plans to focus on four pillars to drive growth in the current financial year and beyond, chief executive Nitish Rakesh told us. These are: expanding its capabilities, geographic presence and leadership, and creating a portfolio of IP-driven innovation in artificial intelligence and machine learning.
Mphasis is looking at increasing its presence in the Nordic countries, Canada and the United Kingdom. It has also expanded its delivery centres to Taiwan, Estonia, Mexico and Costa Rica.
The mid-sized IT service firm is also looking to grow its share of direct business, as the five-year guaranteed revenue agreement with DXC comes to an end this year.
DXC was formed through a merger of HPE and CSC. When private equity firm Blackstone acquired Mphasis from HPE in 2016, it agreed to provide Mphasis a minimum revenue commitment of $990 million over the next five years.
In April-June, DXC revenue fell 18% sequentially to 9% of total revenue while direct business now comprises 89% of the company’s revenue.