Emkay Global Financial's research report on One 97 Communications
As part of its stated strategy to focus on its core payment/financial services business, Paytm has agreed to sell its high-margin movies and event ticketing business (subset of marketing services) to Zomato (foodtech) for an all-cash consideration of Rs20.5bn. This business resided in subsidiaries Wasteland Entertainment (Paytm Insider) and Orbgen Tech (Ticketnew.com) with 280 employees, and logged FY24 revenue/EBITDA of Rs2.97bn/Rs290mn (~3% 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. In our view, the deal would shore up Paytm’s cash and cash equivalents (~Rs81bn exPML funds), which would possibly be used to scale up rewards/cash-back program to revive its dwindling payment business following the RBI action. The net one-off gains adjusted for the earnings outgo would reduce net loss in FY25E, but hurt future earnings.
Outlook
Based on our rough proforma estimates, net value addition/change in TP due to the deal could be only Rs25/share, far lower than the stock price reaction already seen after the newsflow around the deal (even excluding the expected payment aggregator approval). Currently, we have a REDUCE rating on the company, with DCF based TP of Rs375/share.
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