Brokers call: Paytm (Reduce)

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Target: ₹300

CMP: ₹410.40

As part of its strategy of focusing on the dwindling core business viz. Payments and Financial Services post RBI action, One97 Communications owners of Paytm is exploring a deal with Zomato (foodtech) to transfer its high-margin (take rate: 5-8 per cent) movies and event ticketing business (a subset of Marketing Services); this is likely to hit Paytm s customer traffic. Similarly, Paytm has shelved plans to manufacture General Insurance products, and instead focus on distribution. 

Paytm’s subsidiaries Wasteland Entertainment (Paytm Insider) and Orbgen Tech (Ticketnew.com) logged FY23 revenue of ₹193 crore and ₹0.16 crore, leading to marketing/overall revenue share coming in at 14/3 per cent. Assuming higher revenue of ₹260 crore in FY24 (factoring in strong traction in 3QFY24), Zomato is reportedly offering higher deal value of about ₹2,000 crore (8x revenue), incl. receivables. The deal would shore-up Paytm’s cash balance (₹5,300 crore) and could be used to scale-up rewards/cash-back program to revive its payment business (UPI mkt share down, to 6 per cent in May-24 vs 10.5 per cent in Jan-24). 

Given the business slowdown, the management guided to EBITDA loss (ex-ESOP) of ₹500-600 crore in Q1-FY25, as the full-Qtr impact of business disruption gets absorbed. 

We retain Reduce and TP of ₹300/share, given the prolonged business slowdown/losses.