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Morgan Stanley values PhonePe at $7 billion

This is the first time Phone-Pe’s valuation is being put out formally amid talks of its fundraise.

Sep 06, 2019, 09.28 AM IST
In a bull case, PhonePe could be worth as much as $20 billion, said the report from the Wall Street major.
(This story originally appeared in on Sep 06, 2019)
BENGALURU: PhonePe is being valued at $7 billion and it has emerged as a significant factor for a handsome uptick in Walmart’s surging share prices, the latest Morgan Stanley report said. In a bull case, PhonePe could be worth as much as $20 billion, said the report.

Due to the growing potential of PhonePe beyond just payments, Walmart’s share prices could go up to $125 in the base case and $165 in bull case, the report added. This comes at a time when Walmart shares have hit a all-time high of almost $118 in the US on Thursday.

This is the first time PhonePe’s valuation is being put out formally amidst talks of fundraise. At the time Walmart acquired 77% stake in Flipkart last year, PhonePe was being valued at around $1.5 billion.

As reported in August, PhonePe is in talks to close a $1 billion fundraise from marquee set of investors including Tiger Global, Tencent, DST Global and others. While the company has been in discussion with investors for months, the valuation at which it agrees to raise funds been the core issue of the debate. Morgan Stanley said PhonePe could have a stronger revenue stream of about $1.4 billion (base case) from its foray into financial services business. As of now, PhonePe sells only mutual funds but it has broader plans for the segment.

“If PhonePe can monetise financial services, we see it gaining substantially higher market share than in our base case. We model bull case revenues of $70 million from payments, $690 million from the distribution of financial services, and $2.5 billion from consumer lending,” it added. The revenue estimates are for 2029.

The report highlights how the growth of Unified Payments Interface (UPI) and the overall financial services market are the two most significant factors for PhonePe’s valuation and unlocking new revenue opportunity. PhonePe, which was acquired by Flipkart in 2016, could follow a path like China’s Ant Financial and could well be the India’s super app, Simeon Gutman, ED (equity research) at Morgan Stanley noted. According to him, UPI transactions could be at $2.5 trillion by 2029, growing at an annual growth rate of 35%. It noted the company does not see PhonePe’s potential valuation of $20 billion as ‘conservative.’

PhonePe, which now has 6.5 million merchants, could end up with about 25% of market share in the next 10 years on a higher base, less than the current 30% market share. A reason for this fall has been attributed to WhatsApp, which is waiting for final approval to launch UPI payments in India.

Started by former Flipkart executives Sameer Nigam and Rahul Chari in December 2015, the company today said it clocked over 380 million transactions in August with over 90 million offline transactions. The company did not immediately comment on the Morgan Stanley report.

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