Berkshire Hathaway investment in PayTm

Warren Buffett's Berkshire Hathaway investment in PayTm




On Tuesday, PayTm, India's largest payment service provider, said that Berkshire Hathaway Inc, owned by Warren Buffett, has invested an unknown amount in the company, which is a rare deal for the world's most famous investor, which keep away themselves from investing in Internet firms. Media analyst started speculation on Monday that Buffett's Berkshire Hathaway is ready to buy a 3-4% stake in the One 97 Communication for Rs INR. 2,97-2,500 crore, the first investment in an Indian company of billionaire investor. It has been said in the report that the valuation of PayTm is approximately $ 10-12 billion in the current period.

Buffett and his firm based in Omaha, Nebraska have always been skeptical about the internet start-up earning which show a little promise to generate profit, especially in the emerging markets. Berkshire has not invested in China's e-commerce and payment giant, Alibaba Group Holding Limited, which is a prime holder in PayTm.

Berkshire gains


The analyst of this sector suggests it is different from other Indian starts up as due to this deal both company and investor is going to be benefited. In bold words, we can say that the investor is also going to reap benefits, then the funded company. The Vice president of the consulting firm Everest group, Mr. Yugal Joshi say that PayTm is already an established player in the digital market so  Berkshire needs PayTm more than PayTm need Berkshire. If the Hathway wants to explore the volatile Indian market then they need reliable pillar like playtime.

India's digital payment market is expected to have a business of $ 2.4 billion by 2020 in which PayTm has already emerged as a leader. PayTm has earned the trust of major investors such as Alibaba, Softbank of Japan and Media Tek of Taiwan. Apart from digital payment PayTm is also in the e-commerce sector in form of PayTm mall and also planning to drop their leg in cloud computing business in India. Berkshire is mainly a finance company so they will not bring any technological know how to PayTm as Alibaba has brought during their investment in the company. The benefit is that coming of such a large investment firm to India in the company like PayTm bring the attention of the international media firm to the India business sector.

Berkshire in India

It is not the first investment of Berkshire in India, they entered Indian market way back in 2011 as a corporate agent of Bajaj Allianz to sell insurance package in India. But this tie only last for two years as the company faces much red-tapism in India and dull response of Indian towards the Insurance product.

In an interview, Buffet shows interest in investing in an Indian company as he sees much potential in the Indian market. He told the news channel ET Now in an interview on May 2017, "If you call me a wonderful company in India which can be available for sale, then I will be there tomorrow." He said that "India's prospects are unbelievable."Many Investors also expressed their surprise on the Berkshire Hathaway choice to invest in PayTm, as the company loss is increasing per year despite being a leader in the field.

PayTm History


The company reported the total consolidated loss of INR ₹ 1,260 crore on total revenue of INR ₹ 828.6 crore in the year ending March 31, 2017. This deal definitely seems as the boom to Indian startup culture. For the founder of PayTm, Mr. Vijay Shekhar Sharma is the news for self-branding rather than for serious investment in the company. The managing partner of Alteria Capital Advisors LLP believes, "Investment start up is a boost for ecosystem because Berkshire is a market, traditional investor, but it is very quick to say that this is part of a broad strategy." Fund. "Berkshire has traditionally avoided both emerging markets and Internet companies, so we have to wait 18-24 months to see if they will do such investments and whether other traditional investors will follow it." Investment director of Hathaway, Combs said in a statement on Tuesday, "I am impressed with Petty and am excited to be part of my development story because it thinks of changing payments and financial services in India."


Competition


Digital payment market of PayTm was challenged by Google based app “Tez” now termed as Google Pay, another major player Amazon Pay, BHIM and PhonePE (Flipkart). Now Facebook-owned Whatsapp is also planning to bring Whatsapp payment service. Now the PayTm has back up of Berkshire Hathaway, which give them to payTm two faces this global giant competition.

Rahul Chaudhary of Stellaris says"Berkshire's investment in PayTm was astonishing: If you look at their past track record, they have not really been excited about India and they have not focused on investment in the country," Another analyst says"So, obviously, that's a good reason why they chose PayTm on others, especially if you consider Berkshire's capabilities in place of financial services. "I'm not sure whether this PaytTM deal is the beginning of such a big bet on Berkshire from India, they are not dynamic investors.I do not think they want to put their purse-string heavily to invest in more Indian companies.

Future prospect


Founded in 2000 by Sharma, One 97 communication Mobile Payment and Mobile Recharge started as the business and is currently one of the top three consumer Internet companies in the country. It has created a number of payment solutions where consumers can transact through PayTm Wallet and PettyM payment bank. Over the last two years, PayTm has created its e-commerce marketplace aggressively by selling consumer goods, apparel, shoes, smart phones, bus tickets and movie tickets. 

Vijay Sharma said"We feel both enthusiastic and humble with this approval. Berkshire's experience in financial services, and long-term investment horizons, 500 million Indians will be of great benefit in the journey of bringing the mainstream economy through financial inclusion., "I am honored to welcome Todd on our board, where he will be able to guide our management team."


In July, with the number of transactions touching a peak of 1.3 billion in the quarter ending in June, the PayTm claimed to have reached the monthly gross transaction value of $ 4 billion; Mint reported in July.

References

Berkshire confirms investment in Paytm; Buffett not involved. (2018, August 28). Retrieved from https://economictimes.indiatimes.com/markets/stocks/news/berkshire-confirms-investment-in-paytm-buffett-not-directly-involved/articleshow/65566554.cms

Verma, S. (2018, August 29). Paytm sealed the Warren Buffett deal with 1 meeting, 2 phone calls. Retrieved from https://www.livemint.com/Companies/8Iz6f8yFOreyyeXfcFtlWN/Paytm-seals-deal-with-Warren-Buffetts-Berkshire-Hathaway.html

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