A flop IPO. Regulatory hell. Investor money torched. An exit by Warren Buffet himself.
Indian payments firm Paytm’s been on one helluva ride. And unlike a Bollywood fairytale – things won’t improve overnight.
A nearly 200% bounce from lows in May this year might sound like Paytm’s back in its main character era. While the rally is nothing short of remarkable, if you zoom out, the stock is actually trading at just about HALF its IPO price.
It’s not out, but it is down and it may just be its way up again. Should you, Dear Investor, give it a spin?
Ticket to recovery
Paytm’s exit from the entertainment ticketing business in August is surely helping. The company just posted its first quarterly net profit since listing in 2021, thanks mainly to this divestiture.
CEO Vijay Shekhar Sharma now wants to refocus on its core digital payments business, and analysts like Kranthi Bathini of WealthMills, an investment advisor, are welcoming this new direction. It seems that “the worst is over,” says Bathini.
Sharma has gone on record that more cash will now flow into Paytm’s mainstay digital payments business — a U-turn from him trying to spread into everything from e-commerce to online gaming.
A turnaround can’t come soon enough.
Analysts project Paytm’s revenue will decline 34% in the third quarter – much like the preceding two quarters – and losses will double.
But is Paytm sitting on gold?
The digital platform has more than 70 million active users – or roughly 10% of all internet users in India. How Sharma monetizes this will be critical.
While payments hardly give you the $$$ you want — the margins are tight and the competition strong — Sharma knows that a well-oiled payments business sets the stage for launching higher value lending and investment products.
The momentum behind the stock over the past few months is “markedly stronger,” says HDFC Securities analyst Nagaraj Shetti, who sees more upside based on recent trends.
But Shetti is an outlier.
The broader market is still waiting for more concrete plans, or a catalyst, and for now, more analysts have “sell” calls than “buy”, and about half recommend you “hold” the stock.
Will it reclaim its IPO glory? Not anytime soon, most analysts say.
Glass half-full
Paytm recently received a key approval to resume onboarding new users onto its payments platform following an eight-month ban, a sign that it is finally getting on the right side of regulators. India’s central bank had barred the company from onboarding new users earlier this year citing persistent compliance lapses.
Given the sugar-rush in India’s internet stocks, Paytm could give investors the option to invest in a beaten-down stock and not (over)pay for the likes of Zomato, which are pricey based on earnings growth projections.
With India’s vast and rapidly growing internet user base (at ~800 million it is more than twice the US’ population), finding a winner in the online space will be like striking gold.
