Paytm's parent company, One97 Communications, on December 6 approved the sale of its stake in Japan’s digital payments firm PayPay Corporation.
Moneycontrol was the first to report on Friday morning that Paytm 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.
In a notification to the stock exchanges, Paytm said, “We have been informed by One97 Communications Singapore Private Limited, a wholly owned subsidiary of the Company (‘Paytm Singapore’) at 12:49 p.m. (IST), that its Board of Directors at its meeting held today i.e., December 6, 2024, approved sale of Stock Acquisition Rights (SARs) in PayPay Corporation, Japan.”
According to Paytm, the transaction is subject to the satisfactory completion of all corporate approvals. This transaction will increase the consolidated cash balance of the Company to the extent of sale consideration to be received by Paytm Singapore.
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 also sold Paytm insider, its entertainment ticketing business to Zomato for Rs 2,048 crore.
Paytm’s windfall
During its April-June quarter earnings call, Paytm CFO Madhur Deora said that it holds stock acquisition rights in in PayPay Corporation (5.4% 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 last year, 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 back 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 press release dated July 27, 2018, notes.
As part of the setup, 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 (once exercised).
At the time, SoftBank was one of the largest shareholders in Paytm through its Vision Fund. However, over a course of time, the Japanese tech investor has pared down its share to nil and fully exited the firm, as of 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 a crucial approval from NPCI to onboard new UPI users, lifting restrictions.
The company has also been restructuring by reducing employee costs, pruning non-core assets like travel and ticketing, and streamlining its lending business with more secure offerings and a distribution-only credit model.
Paytm’s outlook
Paytm parent One 97 Communications Ltd reported a profit of Rs 930 crore in the second quarter ended September 2024 from Rs 290 crore loss a year back, on the back of gains made from sale of its entertainment ticketing business to Zomato.
Without the exceptional gain, Paytm continues to be in red in the said quarter at Rs 495 crore loss, a 70 percent jump compared to last year.
However, Paytm managed to narrow down to its loss sequentially by almost 41 percent from Rs 840 crore it reported in the June quarter (Q1FY25) on the back of cost cuts.
At the same time, the company's 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 had stated, "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 in a call with analysts following the results.
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