Paytm Sprints on Low Level Buying After Positive Analyst Commentary; Know Details

Shares of Paytm parent One 97 Communications spiked on Friday after hitting an all-time low of Rs 439.6 in the previous session. The scrip jumped nearly 7 per cent to Rs 470 apiece on the BSE on Friday on low-level buying as the demand for the counter upturned following a positive commentary from analysts.

“We note that Paytm’s business in lending space is distribution with no balance sheet exposure and therefore its revenue/cost-structure are commissions-based,” said Vijit Jain of Citi, who has a ‘buy’ rating with a target at Rs 1055. “We acknowledge overhang risks from further selling by existing pre-IPO shareholders and that fintech is a competitive space but at these valuations, those risks are overdone.”

Paytm has gained market share in digital payments versus PayU, the broker said adding that the company is trading at 5x FY24e EV/contribution profits. The broker acknowledged overhang risks from further selling by existing pre-IPO shareholders. However, it added that fintech is a competitive space but at these valuations, risks are overdone.

The Paytm stock slumped 19.27 per cent in the past four sessions. It hit a record low of Rs 439.60 on November 24, 2022.

Japanese conglomerate SoftBank Group sold 4.5 per cent stake in One 97 Communications (Paytm) via bulk deal on 17 November 2022.

As per the bulk deal data on the NSE, SoftBank’s SVF India Holdings (Cayman) on 17 November 2022, offloaded 2,93,50,000 shares or 4.52% stake in Paytm’s parent at an average price of Rs 555.67 each for Rs 1,630.89 crore through an open market transaction.

As of 30 September 2022, SoftBank held a 17.45 per cent stake in Paytm through SVF India Holdings (Cayman).

The sale followed the end of one-year mandatory lock-in for pre-IPO investors in Paytm. The stock entered the bourses on 18 November 2021. It was listed at Rs 1955, a discount of 9.07 per cent compared with the initial public offer (IPO) price of Rs 2150. The IPO of Paytm was subscribed 1.89 times. The issue opened for bidding on 8 November and it closed on 10 November. The price band of the IPO was fixed at Rs 2080 to Rs 2150 per share.

SoftBank had invested $1.6 billion in Paytm and had sold a partial stake worth $220-250 million in the IPO last year.

However, some analysts have counted risks that may push stock prices lower. They have also lowered their price target. One among them is Macqarie’s Suresh Ganapathy who has an ‘underperform’ rating with a target at Rs 450.

Among the risks are high competition in the payments industry, inability to monetise UPI services, inability to scale lending business, and any regulatory risks.

One 97 Communications is a digital financial services firm that operates under the Paytm brand. Paytm is India’s payment super app offering consumers and merchants comprehensive payment services.

On a consolidated basis, One 97 Communications’ revenue surged 76.2 per cent to Rs 1914 crore in Q2 September 2022 over Q2 September 2021. The revenue was driven by increase in merchant subscription revenues, growth in bill payments due to growing MTUs (monthly transacting users) and growth in disbursements of loans through platform. However, the company’s consolidated loss widened to Rs 571.10 crore in Q1 June 2022 from net loss of Rs 472.90 crore a year ago.

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