Shares of Paytm parent company One 97 Communications spiked on Friday after reaching a 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 demand for the counter surged following positive commentary from analysts.
“We note that Paytm’s lending business is distribution with no balance sheet exposure and therefore the revenue/cost structure is commission based,” says Citi’s Vijit Jain, who has a buy rating with a target of Rs 1055.” We recognize overhanging risks of further sales by existing pre-IPO shareholders and that fintech is a competitive space, but at these valuations those risks are exaggerated.”
Paytm has gained market share in digital payments versus PayU, the broker said, adding that the company is trading at 5x FY24e EV/contribution profit. The broker acknowledged overhanging risks from further sales by existing pre-IPO shareholders. However, it added that fintech is a competitive space, but risks are exaggerated at these valuations.
Paytm shares fell 19.27 percent in the past four sessions. It reached a record low of Rs 439.60 on 24 November 2022.
Japanese conglomerate SoftBank Group sold a 4.5 percent stake in One 97 Communications (Paytm) in a bulk deal on November 17, 2022.
According to the bulk deal data on the NSE, SoftBank’s SVF India Holdings (Cayman) has sold 2,93,50,000 shares or 4.52% stake in Paytm’s parent company at an average price of Rs 555.67 each for Rs 1,630 on Nov 17, 2022, as per the bulk deal data on the NSE. 89 crore through an open market transaction.
As of September 30, 2022, SoftBank owned a 17.45 percent stake in Paytm through SVF India Holdings (Cayman).
The sale followed the end of a one-year mandatory lock-in for pre-IPO investors in Paytm. The share went public on November 18, 2021. It was listed at Rs 1955, a discount of 9.07 percent compared to its initial public offering (IPO) price of Rs 2150. Paytm’s IPO was subscribed for 1.89 times. The issue opened for bids on November 8 and closed on November 10. The price range of the IPO was set at Rs 2080 to Rs 2150 per share.
SoftBank had invested $1.6 billion in Paytm and sold a partial stake worth $220-250 million in its IPO last year.
However, some analysts have factored in risks that could drive down stock prices. They also lowered their price target. One of them is Suresh Ganapathy of Macqarie, who has an ‘underperform’ rating with a target of Rs 450.
Risks include the strong competition in the payments industry, the inability to monetize UPI services, the inability to scale lending and potential regulatory risks.
One 97 Communications is a digital financial services company operating under the Paytm brand. Paytm is India’s payment super app that provides comprehensive payment services to consumers and merchants.
On a consolidated basis, revenues of One 97 Communications increased by 76.2 per cent to Rs 1914 crore in Q2 Sep 2022 from Q2 Sep 2021. Revenues were driven by an increase in subscription revenue from merchants, growth in bill payments as a result of growing MTUs (monthly user transactions) and growth in loan disbursements through platform. However, the company’s consolidated loss rose to Rs 571.10 crore in the first quarter of June 2022 from a net loss of Rs 472.90 crore a year ago.
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