Paytm hits record low after Macquarie flags risks from Mukesh Ambani’s financial foray. During the NSE trading session on Tuesday, Paytm shares were trading 9.23% lower at 487.45 per share.
One97 Communications, Paytm’s parent company, saw its shares plummet to an all-time low on Tuesday after Macquarie Group analysts warned of potential risks associated with billionaire Mukesh Ambani’s entry into the financial services industry with Jio Financial Services.
According to a note by Macquarie Group analysts led by Suresh Ganapathy, Reliance Industries Ltd.’s Jio Financial Services Ltd. “can pose a significant growth and market-share risk for competitors such as Paytm and Bajaj Finance.”
The company’s stock fell more than 11% in Mumbai, bringing it close to its lowest point since its market debut in November of the previous year. Paytm’s stock was trading 9.23% lower on the NSE today, at 487.45 per share.
As Paytm’s losses grew, SoftBank Group Corp. reduced its investment, resulting in a 75% drop in the stock’s listing price. Over the previous week, the stock fell by 23%.
JFS may overtake the fifth-largest fintech company.
RIL’s financial services division, which was recently demerged and rebranded, will be known as Jio Financial Services. According to Macquarie analysts, JFS may surpass the HDFC twins, SBI, ICICI Bank, and Axis Bank in terms of net worth to take fifth place among Indian financial services companies.
According to Macquarie analysts, RIL already has a non-banking finance company license, which it can use to increase consumer and merchant lending significantly. Analysts have set Paytm’s target price at $450, indicating that they believe the company will perform poorly.
The warning was issued in response to RIL’s announcement that it would separate and list its financial services division to strengthen its consumer business position. A new challenge has emerged for Paytm, which has struggled since its $2.3 billion IPO last year—one of the most extensive offerings in Indian history.
According to Prashanth Tape, an analyst at Mehta Securities, “Jio’s plan has added problems for Paytm,” as consumer technology companies’ valuations fall, it is becoming more difficult for new investors to believe in them.
The Paytm lock-in period has expired.
Paytm’s lock-in period ended in early November, and the company will begin trading on stock exchanges in November 2021.
SVF India Holdings (Cayman) Ltd. sold approximately 2,93,50,000 shares, or 4.5% of the company, according to National Stock Exchange (NSE) data on large transactions.
SVF India is a subsidiary of SoftBank.
A total of 1,630.89 crores in shares were sold, with an average price of 555.67 rupees per share.
With a 17.45% stake, SoftBank is the company’s second-largest shareholder.
SoftBank’s ownership stake in the industry leader in digital payments will fall from 17.45% to 12.95% following the transaction. The paying app’s stock price has dropped 26% in two weeks, reaching a new low.
Tuesday’s BSE intraday low for the paying app’s shares was Rs 483.30, or 77% less than the IPO price of Rs 2,150 per share.
On Tuesday, the market was stable primarily, but shares of One97 Communications, the company behind India’s largest payments platform, the paying app, fell 10%, reaching a new low of Rs 483.30 on the BSE. The stock fell below its previous low of Rs. 511, which it had set on May 12, 2022.
The S&P BSE Sensex was up 0.24% at 10:10 a.m., but the stock price was down 8% at Rs 492.15. Over the last two weeks, the stock of the fintech company has dropped by 26%. Paytm’s stock price has more than halved, or by 64%, over the last year, while the benchmark index has gained 4.8%.
Paytm shares are now trading at 78% of their IPO price of Rs 2,150 per share. The stock reached a record high of Rs 1,961 on the day of its listing, November 18, 2021.
On November 17, 2022, SoftBank Group Corp. sold a 4.5 per cent stake in Paytm in block transactions for Rs 1,630 crore. According to bulk deal data, SoftBank Vision Fund (SVF) India Holdings (Cayman) sold shares at Rs 555.67 per share. SVF India Holdings’ (Caymansharestakestake) stake in Paytm fell from 17.45 per cent as of September 30, 2022, to 12.93 per cent due to the transaction.
According to the information, the shares were purchased by Societe Generale – ODI, BOFA Securities Europe SA, and Morgan Stanley Asia Singapore Pte.
With over 21 million merchants and 337 million users, the paying app is India’s largest digital ecosystem. The Paytm ecosystem, in addition to its e-commerce and e-ticketing platforms, offers lending, insurance, wealth management/broking services, mobile banking through Paytm Payments bank, and e-ticketing.
These services are available to both individuals and businesses. In FY21, the paying app generated 75% of its revenue from financial and payment services, with payment services accounting for the lion’s share of this.
The stock of One 97 Communications (Paytm) rose 3% on Thursday morning but then fell. As of the most recent calculation, the stock had fallen for four consecutive sessions. Although many foreign brokerages have price targets that indicate the stock could double from here, momentum for the Paytm stock is so weak that some technical analysts predict it will fall below Rs 350.
Paytm’s 75% gain since its IPO is the worst for large IPOs in a decade, according to a recent Bloomberg report. The stock recently experienced a new wave of selling after Macquarie warned that Jio Financial Services could pose a severe threat to fintech companies such as Paytm.
On Thursday, the stock gained 3.22%, reaching a high of Rs 466.90 on the BSE before losing all of its gains. It was later trading at Rs. 449.85, down 0.5%.
In a client note published on November 22, JM Financial predicted that Paytm revenue would grow at a robust CAGR of 32% between FY22 and FY26E, owing primarily to scale in the financial services sector. Nonetheless, current take rates are in jeopardy. The Paytm stock has a target price of Rs 600 set by the brokerage.
Despite its infancy, the paying app’s financial services division “has a sizable window of opportunity for growth.” Paytm’s ESOP expenses and continued growth in total revenue will almost certainly have an impact on the incremental path to profitability, it added.
JPMorgan has assigned the stock an “Overweight” rating and set a Rs 1,100 target price. Paytm’s revenue is expected to rise across all business segments due to increased ad monetization, cross-selling of financial services, ticketing recovery, and device monetization in payments, according to this brokerage.
“By FY26, we expect CMs to be at 48% and revenues to increase at a CAGR of more than 44%, reaching $2.7 billion.” “We believe the paying app will continue to have the highest revenue and profit levels among regional, industry-specific, and international competitors,” the company stated.
Although payment processing fees have recently been moderated, increasing profitability, JM Financial believes that further reductions in payment processing fees will be difficult.
We support the management strategy of increasing productivity while focusing on profitability, and we forecast Paytm’s Ebitda to break even by FY26E. The management expects adjusted Ebitda to equal parity by FY24. The report states, “we project a GMV and revenue CAGR of 34% and 32%, respectively, over FY22-26E.”
Edited by Prakriti Arora