Paytm up 5% on sale of entertainment biz; stock zooms 95% from 52-week low

With a strong focus on long-term value creation, Paytm's management said it remains confident of substituting the revenues from its entertainment ticketing business by expanding its core business.

Shares of One 97 Communications (OCL), which runs the Paytm payments platform, hit an over six-month high of Rs 604.45, up 5 per cent on the BSE in Thursday’s intra-day trade. 

The rally in the company's stocks came after it announced on Wednesday that it will sell its entertainment ticketing business to food delivery platform Zomato for a consideration of Rs 2,048 crore.

At 11:00 am; Paytm was trading nearly 2 per cent higher at Rs 582.90, compared to the 0.22 per cent rise in the BSE Sensex. The stock is trading at its highest level since February 1, 2024. The stock had bounced back 95 per cent from its 52-week low of Rs 310, that it had touched on May 9, 2024.

“This deal, valued at Rs 2,048 crore on a cash-free, debt-free basis, stands as a testament to the value Paytm has created through its entertainment ticketing business, bringing choice and convenience to millions of Indians with its services and scale,” the company said in a statement.

Paytm’s move to sell its entertainment ticketing business underscores its core focus on payments and financial services distribution.

In recent quarters, the company has also expanded its offerings into insurance, equity broking and wealth distribution, where it anticipates significant opportunity to cross-sell these services and grow its market presence as a leading financial services distribution player, according to its exchange filing.

Paytm's combined entertainment ticketing business generated Rs 297 crore in revenues and Rs 29 crore in adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the financial year 2023-24 (FY24). Consequently, the sale of the ticketing business generates significant profits for Paytm, with cash proceeds from the transaction expected to further strengthen its balance sheet.

With a strong focus on long-term value creation, the management said the company remains confident of substituting the revenue from its entertainment ticketing business by expanding its core business areas of payments and financial service distribution.

The deal values this business at 6.9x FY24 revenue, compared to the earlier proposed deal for BookMyShow (7.7x FY23 revenue) by KKR, according to analysts at Emkay Global Financial Services.

According to the brokerages’s view, the deal would shore up Paytm’s cash and cash equivalents (around Rs 8,100 crore exPML funds), which could possibly be used to scale up its rewards/cash-back program to revive its dwindling payment business following the RBI action.

The net one-off gains adjusted for the earnings outgo from the transaction would reduce Paytm's net loss in FY25E, but it oculd hurt future earnings, the brokerage firm stated.

“Based on our rough proforma estimates, net value addition/change in target price due to the deal could be only Rs 25/share, far lower than the stock price reaction already seen after the newsflow around the deal (even excluding the expected payment aggregator approval),” the brokerage firm said.

Currently, analysts have a REDUCE rating on the company, with DCF based target price of Rs 375 per share.

The sale would enable a sharper focus on the company's core business, including travel, deals and cashback services, which are crucial for expanding the merchant base and grow overall sales.

This strategic move could further enhance shareholder value by concentrating efforts on high-growth areas, brokerage firm Motilal Oswal Financial Services said in its stock update.

The sale of its entertainment business would also provide a financial boost to the company, as this transaction will generate significant profits for Paytm, allowing it to reinvest in other high-potential areas.

Cash proceeds from the transaction will further strengthen Paytm's balance sheet, the brokerage firm stated, while estimating Paytm’s EBITDA to turn positive by FY27.

The brokerage firm, however, maintains a 'Neutral' rating on the company, with a target price of Rs 550.