Warren Buffett’s Berkshire Hathaway confirms investment in Paytm

This is the company’s first investment in a privately-held tech company in the world

Publish date: 28th August, 2018

Warren Buffett’s company Berkshire Hathaway has confirmed investing in Paytm’s parent company One97 Communications on Monday, according to Indian news channel ETNow.

The confirmation comes days after Indian newspaper Mint reported about Warren Buffett’s interest in Paytm, which is the country’s largest payment service providers

Berkshire Hathaway have confirmed the deal but clarified that their chairman, Buffett, is not directly involved in the deal.

US-based Berkshire Hathaway is reportedly buying a 3-4% stake in Paytm, which is about Rs 2,000-2,500 ($300-350 million).

The latest investment, which will be made public in the next fortnight, is likely to push Paytm’s valuation well above $10 billion.

This marks Berkshire Hathaway’s first investment in an Indian firm in seven years. It had earlier tied up with Bajaj Allianz General in 2011, but they exited the market two years later owing to low profitability and stringent ownership laws.

The investment has apparently been in the pipeline for a few months now, with Mint reporting that talks with Paytm began way back in early February.

If confirmed, Berkshire will be the third marquee global investor in Paytm, joining the likes of Japan’s Soft Bank and Chinese retail giant Alibaba.

Ringing endorsement

Buffett’s company has shown tremendous faith in Paytm as this is their first investment in a privately-held tech company in the world. Paytm is currently owned by Vijay Shekhar Sharma.

It is even more remarkable because Buffett himself has been notoriously shy of investing in tech companies in the past, passing up the opportunity to buy a stake in Amazon in 1997. The aversion to tech companies has changed somewhat over the years, with Buffett having invested nearly $50 billion in Apple

The latest injection of cash will provide Paytm with more heft in the ever-growing payment service market in India. That’s because the mobile payment landscape has been buzzing with new entrants in the shape of Google’s Tez app and Flipkart’s Phonepe. Facebook’s WhatsApp and Reliance Jio are also looking to make inroads in this growing ecosystem.

Berkshire Hathaway’s investment is a ringing endorsement for Paytm’s expansion plans, especially because the payment service providers are still incurring heavy losses. Business intelligence platform Paper.VC suggests that the company reported a consolidated loss of Rs 899.6 crore in FY2017 and Rs 1,176 crore loss in FY2016.

The company’s investment underscores confidence in the tech firm. An unnamed source familiar with the deal told the Economic Times: “Berkshire Hathaway is impressed by the scale that Paytm has been able to build in a short period of time. They relish that technology companies go through a cycle of losses before they start generating cash.”

Timely boost

The investment comes at a time when Paytm is looking to expand its footprint across financial services and offline payment platforms.

The Noida-based company, which claims to have 300 million users, plans to spend Rs 5,000 crore in financial services this year and double the number of quarterly transactions. It currently boasts of conducting five billion transactions worth $50 billion annually.

The company also plans to expand its footprint in the lending business. Last November, the tech company joined hands with ICICI Bank to provide interest-free short-term digital credit to its customers. This has enabled customers to get short-term loans to buy movie tickets and physical goods, pay utility bills and book airline tickets.

One97 Communications have also set up Paytm Money, a platform that will enable customers to invest in mutual funds. As of August 7, half a million people have signed up to invest in mutual funds through this app, according to a Mint report, though the app is not open to the public yet. Media reports suggest that Paytm Money has tied up with 12 to 15 fund houses. The company intends is targeting 20 million customers in the next three years.

The Paytm Money business looks promising because the word coming out is that they will waive additional fees. Such a feature would be a huge boost for the burgeoning mutual fund industry in the country.

Paytm is also looking to enter the content service platform and take on Amazon. Sources say that the tech firm is planning to invest $30 million to build its entertainment content. It has already launched an ‘Inbox’ service which includes features like Live TV, news, cricket and entertainment news.

Founded in August 2010 by Vijay Shekhar Sharma, the company got its big break when India’s Prime Minister Narendra Modi decided to scrap the old Rs 500 and Rs 1,000 banknotes overnight on November 8, 2016. The sudden ban of physical cash spurred the use of mobile wallets in the country, with Paytm adding 10 million new customers within a month.

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