Brokerages remain bearish on Paytm but split on outlook after selling ticketing biz to Zomato

Paytm's tock has recovered around 95 percent from its 52-week low of Rs 310, hit earlier this year but it is still trading 9 percent down on year-to-date basis

Paytm is selling its ticketing business, which includes movies and events, to Zomato for an all-cash consideration of Rs 2,048 crore as the embattled fintech seeks to focus on its core financial services offerings.

Brokerages view this development as a positive of Zomato with Bernstein, Jefferies, and Nomura highlighting the acquisition's potential to enhance Zomato's growth. For Paytm, however, some analysts believe that the net one-off gains adjusted for the earnings outgo would reduce net loss in FY25E, but hurt future earnings.

The movies and event ticketing business was a high-margin business for Paytm that resided in subsidiaries Wasteland Entertainment (Paytm Insider) and Orbgen Tech (Ticketnew.com) with 280 employees. It logged FY24 revenue and EBITDA of Rs 297 crore and Rs 29 crore, respectively (~3 per cent of overall revenue).

The deal values this business at 6.9x FY24 revenue vs the proposed earlier deal for BookMyShow (7.7x FY23 revenue) by KKR, noted Emkay. "In our view, the deal would shore up Paytm's cash and cash equivalents (~Rs 8,100 crore ex-PML funds), which would possibly be used to scale up rewards/cash-back program to revive its dwindling payment business following the RBI action," the brokerage said.

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However, analysts believe that the net one-off gains adjusted for the earnings outgo would reduce net loss in FY25E, but hurt future earnings. Based on its rough proforma estimates, net value addition/change in target price due to the deal could be only Rs 25 per share, far lower than the stock price reaction already seen after the news flow around the deal, they said.

The brokerage maintained a 'Reduce' rating on Paytm with a DCF based target price of Rs 375 per share.

Citi has maintained a "sell" rating on Paytm but raised the target price to Rs 440 from Rs 410 earlier. The brokerage views the sale of Paytm's entertainment ticketing business to Zomato as a positive development, noting that the deal value is higher than implied.

Citi also highlighted that the next significant trigger for Paytm will be government approval of FDI for the payment aggregator, which would allow the firm to resubmit its payment aggregator license application to the RBI.

At 9:17 am, Paytm shares were trading over 4.5 percent higher at Rs 604.70 on the National Stock Exchange (NSE). The stock has recovered around 95 percent from its 52-week low of Rs 310, hit earlier this year but it is still trading 9 percent down on year-to-date basis.

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