Paytm's parent company, One97 Communications, is close to finalising a $250 million (approximately Rs 2,000 crore) deal to sell its stake in Japan’s digital payments firm PayPay Corporation to SoftBank Group, sources have said.
The sale is in line with Paytm’s strategy to divest non-core assets and strengthen its capital base as it focuses on scaling its core payments business following a challenging year. Earlier this year, it sold Paytm Insider, its entertainment ticketing business, to Zomato for Rs 2,048 crore.
Shares of Paytm hit a 52-week high on December 5, clocking gains of 185 percent in six months as analysts believe its regulatory issues are behind, with improving growth outlook. Paytm has a cash balance of over Rs 10,000 crore and the latest move will further shore it up to Rs 12,000 crore, giving it a war chest to double down on growth.
Moneycontrol has reached out to Paytm and SoftBank with queries and will update this story when they respond.
Paytm’s windfall
During its June quarter earnings call, Paytm CFO Madhur Deora said it holds stock acquisition rights in in PayPay Corporation (5.4 percent stake once exercised) and pegged the carrying value for the same at approximately Rs 2,000 crore.
The “carrying value” for PayPay refers to the value Paytm recorded on its financial statements for its stake in the firm.
In July 2023, Reuters reported that PayPay was considering a US listing to capitalise on higher valuations. A SoftBank executive had previously estimated the company’s valuation at around 1 trillion yen ($6.8 billion).
Paytm's cash reserves could get a huge boost and the capital it needs for scaling its business.
Paytm-PayPay link
Paytm’s association with PayPay dates to 2018.
The company had partnered with PayPay Corporation — a joint venture between SoftBank, its largest shareholder back then, and Yahoo Japan (Z holdings) — to launch QR-code-based cashless payments in the region.
“PayPay Corporation, SoftBank, Yahoo Japan, and Paytm will expand the number of users by including the customer base of SoftBank and ‘Yahoo! Wallet,’ which comprises approximately 40 million accounts. They will also deploy the platform using SoftBank's sales know-how and develop a tailored service offering leveraging Paytm's technology,” a July 27, 2018, release said.
Paytm served as a technology service provider to the firm while holding a call option on PayPay equity, which gave it an estimated 5.4 percent stake.
At the time, SoftBank was one of the largest shareholders in Paytm through its Vision Fund. However, over the course of time, the Japanese tech investor pared its stake and fully exited the firm in June 2024.
Paytm’s comeback
Paytm’s move to offload stakes in Insider and PayPay comes as the company seeks to regain its foothold in the fintech space following regulatory setbacks to its banking entity, Paytm Payments Bank, earlier this year.
In October, it received an approval from NPCI to onboard new UPI users, lifting restrictions completely.
The company has also been restructuring by reducing employee costs, pruning non-core assets such as travel and ticketing and streamlining its lending business with more secure offerings and a distribution-only credit model.
Paytm’s outlook
One 97 Communications reported a profit of Rs 930 crore in the September quarter, up from a Rs 290-crore loss a year back, on the back of gains made from the sale of the entertainment ticketing business to Zomato.
Without the exceptional gain, Paytm continued to be in the red in at Rs 495 crore loss, a 70 percent jump from the previous year.
However, Paytm managed to narrow down to its loss sequentially by almost 41 percent from Rs 840 crore in the June quarter on the back of cost cuts.
Its revenue from operations also increased slightly (10.5 percent) to Rs 1,659 crore from Rs 1,501 crore in Q1 but dropped 34 percent year-on-year.
'Not a mediocre player'
On the outlook, founder and CEO Vijay Shekhar Sharma said, "There are large opportunities for Paytm to grow. We are not here to become a mediocre player. Paytm will have a significant role to play in the UPI consumer market. Once we have customers on the platform, we will have extraordinary opportunities to cross-sell financial services and other by-products."
During the earnings call, Sharma expressed confidence in the company’s ability to address the concentration risks in the UPI ecosystem. “In the UPI ecosystem, when the RBI allowed us to become a TPAP (Third Party Application Provider) player, it very clearly marked a responsibility to Paytm to potentially solve the concentration risks the system carries,” Sharma said.
At 10 am, the One97 Communications, stock was trading at Rs 948.60 on the National Stock Exchange, down 0.76 percent from the previous close.
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