Has Paytm Stock Turned The Corner After Operating Numbers Bring Minor Gains?

Will Paytm be able to win the confidence of stock market investors and reverse its downward journey on bourses? Market analysts say it is difficult to give a definite answer. But more clarity is expected in the next few weeks especially as the fintech major has released encouraging operating performance numbers for the March quarter ahead of its earnings call.

Despite the selling pressure in the broader market, Paytm share price rose 4.57% to INR 637.15 apiece on Wednesday after a pep talk by founder and CEO Vijay Shekhar Sharma. 

The reaction of global investors would be keenly watched after the operating performance announced — foreign institutional investors hold 80.5% in Paytm as of the December quarter. Also, Paytm’s performance is seen as a bellwether for other new-age stocks and the startups keen to tap the market, so there could be ripple effects across the market depending on how Paytm performs. 

Paytm Sounds Bullish

Sharma took the market by surprise with his comments about stock grants and EBITDA breakeven expectations, but the current stock price is still a far cry from the IPO price of INR 2,150 per share. 

The Paytm founder said, “My stock grants will be vested to me only when our market cap has crossed the IPO level on a sustained basis.” 

This comment, which comes after a series of drubbings on the stock market for Paytm, seems to be aimed at reiterating the management’s belief in the business model.

Directly addressing a chief concern among investors about profitability, Sharma said that Paytm is set to achieve operating EBITDA breakeven in September 2023 quarter, 18 months from now. Seeking to assuage investor concerns, he also said Paytm is committed to creating long-term value for shareholders.

In a filing with stock exchanges, Paytm parent One 97 Communications outlined its March quarter operating performance:

• The lending business grew to 6.5 Mn loan disbursals during the March quarter, aggregating to a total loan value of INR 3,553 Cr, registering 417% growth
• The offline payments business also saw acceleration, with 0.9 Mn devices deployed in this quarter. The total number of point of sale (PoS) devices deployed grew to 2.9 Mn
• Paytm ‘Super App’ average monthly transacting users (MTU) grew 41% (year-on-year) to 70.9 Mn users
• Over 104% year-on-year increase in payments GMV for the quarter at INR 2.59 Lakh Cr

Why Paytm Is Still Not Out Of Woods

The numbers and projection may bring a measure of comfort to investors, but the new headwinds emerging can upset the calculations. 

According to Likhita Chepa, senior research analyst, CapitalVia Global Research Limited, the uncertainty of this space, overvaluation and regulatory headwinds were the major reasons for the downward trajectory of this stock.

Paytm and other fintech startups are in for a rough ride. After the recent developments in the banking space such as the Axis Bank-Citi deal and the merger of HDFC twins, speculation is also rife that a tighter regulatory regime is on the anvil for NBFCs. This will naturally impact the fintech space. 

Fintech players, including Paytm, are in any case in direct competition with banks. “Competition in the fintech space is only going to intensify, not just from other new-age fintech companies, but also from banks which are getting bigger and boosting their digital offerings. The road to profitability seems to be getting longer by the day,” said Richa Agarwal, senior research analyst at Equitymaster.

Brand Image

Besides the intense competition in the fintech space, Paytm faces image perception issues and investors giving it a thumbs-down can be attributed to the weak brand image too. 

Agarwal added the stock price was not about how the company is perceived in the market. The sustainability and visibility issues are real, she added. “If anything, it was the issue of price that was more a function of perception and narratives that are not holding up,” she said. 

The fintech major may have to burn a substantial amount of cash to manage perception better which may reflect in the bottom line and delay recovery on bourses. “We agree to this view (cash burn) and hence advise conservative investors to stay away from this space,” Chepa added.

Core Issues

It was a spectacular fall for Paytm, from an IPO price of INR 2,150/share to a 52-week low of INR 520 within months. But it was not alone.  

As the capital started moving out from large public companies due to various reasons, recently listed new-age tech companies came under severe selling pressure. Many questions were also raised about startups rushing to the primary market. Their valuation, business models, viability, profitability and more were questioned by analysts. Given how far Paytm’s stock had fallen since listing, investors and analysts mused whether the stock has bottomed out. 

The question gains further importance after Sharma’s remarks. According to EquityMaster’s Agarwal, for a loss-making business with no visibility on profit and things getting worse by the day, it is impossible to arrive at an intrinsic valuation. 

“Although the firm is focused on becoming profitable operationally, we advise investors to look at the absolute numbers and watch out for the next quarter performance as we see a base effect due to which the growth was higher,” added CapitalVia’s Chepa.

She also said accumulating Paytm stock at current levels for short term investors is not recommended as no great improvement has been seen in its fundamentals, which weakens the near-term view.

But It’s Not All Doom And Gloom

Last month, the Reserve Bank of India (RBI) had asked the fintech major to stop onboarding new customers in Paytm Payments Bank. It had cast a shadow over stock which was already facing several headwinds. But this seems to have been factored in now. 

The regulatory measures to ensure the stability of systems and sanctity of processes and the expectations for Paytm to operate as a bank instead of a tech company have already been factored in its prices, according to Chepa. 

She cautioned that any comments from the regulator on consolidation in its key metrics can impact its performance adversely.

The competition in the fintech space notwithstanding Paytm enjoys a massive customer base. It has also been successful in selling financial services and commerce to its users

According to Rahul Sharma, cofounder of Equity 99, a stock market advisory, Paytm has been cutting down on marketing expenses, which means the management is not dependent on cashbacks and offers to grow the business. “If Paytm is able to continue on this trajectory, it will be able to see profitability soon as mentioned by its CEO in the recent shareholder letter.”

Paytm’s global counterparts too have seen steep corrections. This has also hurt the sentiments of the domestic investors and led to selling pressure on the stock. Coupled with other factors, its outlook further worsened. According to a report by Dolat Capital, as investors questioned the earnings-multiple valuations amid the global sell-off, it made high-growth fintech companies unfavorable.

“The global fintech stocks all over the world saw steep corrections with the unlocking of the global economy and its impact was also seen on Indian fintech stocks. However, we do not see a further fall in Paytm,” added Sharma, who expects a 30% to 40% move.

Then, there are some momentum indicators and a few green shoots in the near term. such as improving operational metrics and the commitment to create long-term shareholder value. 

What’s indubitable is that Paytm continues to be widely used for everyday payments which is visible in their monthly transacting users. The company’s brand power is massive, and people associate online payments with Paytm, which helps overcome some of the challenges in terms of future growth. 

As Paytm starts climbing back up, after the huge correction, there are a lot of expectations from investors and analysts. Whether its financial performance elicits the same positive response as its operating numbers will be answered in the next few days. 

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