PayU acquired BillDesk in September 2021 for ₹ 13,500 crores. The valuation is 15 times the revenue of PayU, which reported a ₹ 2,300 crore revenue in FY21.
BillDesk has a CAGR of 26%, and the profit in FY20 is ₹ 928 crore. The valuations might look expensive, but they could have cost PayU more after a few years as the valuations of start-ups are skyrocketing.
BillDesk has given a higher valuation and strong investor sentiment during its plan to file IPO.
BillDesk has approximately 50% market share in India. It is expensive even as merchants are integrating multiple payment gateways on their websites. A merchant can easily promote or suggest that one payments gateway is better than another on the website.
Prosus owns PayU. PayU was taken aback by its competitors like Paytm and Razorpay as they acquired customers aggressively, cut down prices, and did transactions at losses.
In FY17, PayU earned 15 times more revenue than Razorpay. In FY20, the growth rate of Razorpay doubled, and the revenue was half of PayU. The gap might have reduced as the transaction value of PayU is $55 billion, which is not even at par with Razorpay.
BillDesk strengthens the digital and SMB (small-and-medium business) segment of PayU.
RBI is tightening the regulations relating to the payments industry. Any non-banking entity needs to have a minimum net worth of ₹15 crore, a payment aggregator (PA) license, store data in India, besides several other requirements.
PayU is a lucrative business as compared to its competitors. The joint entity will develop revenue opportunities and grow in the lending business vertical. Digital payments in India are only 26% of the total payments. The segment will grow and touch $2.6 trillion by 2026.
The Digital Payments segment can boost its operations because it does not require physical infrastructure and CAPEX to build its business. The volume of digital payments has grown more than 80% since 2019 to 44 billion in 2021.
BillDesk Standing Instruction Hub is the only platform that provides recurring payments without additional security, according to RBI.
BillDesk-PayU partnership is strong, and strengths are complementary. BillDesk is well established in banks, utility-payments companies and manages SIPs.
RBI has come up with licenses so that they get cancelled in case of infringement or online betting. Cybersecurity is another concern as the consumer’s data could be misused globally.
BillDesk has a majority market share. The banks are concerned about the integration of BillDesk with them, helping it gain pricing power.
RBI or CCI cannot stop the M&A deal. CCI won’t approve the merger of Swiggy and Zomato. But, BillDesk and PayU are intermediaries and are not affecting pricing.
RBI created an alternative NPCI – NUE to ensure competitiveness and avoid monopoly. PhonePe was dependent on Yes Bank for its payments and lost 40% of transactions when Yes bank faced a crisis.
The acquisition will strengthen the position of PayU and help it provide digital payment services.
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