Paytm Ends 2023 On A Sombre Note: Can The Fintech Juggernaut Turn The Tide In 2024?

After its muted debut on the Indian bourses in 2021, the Paytm stock continued to get beaten in 2022, plunging as much as 60% during the year. Amid the bloodbath in new-age tech stocks, the company’s market capitalisation tumbled to a mere $4 Bn by the end of 2022 from $13 Bn at the time of its listing.

However, the stock bounced back strongly, and the year 2023 saw Paytm driving the bullish sentiment of investors towards the new-age tech stocks. 

Piggy-backing on an improvement in its bottom line, strengthening of loan disbursement business, and a strong growth trajectory, the fintech giant’s shares rallied over 80% until October this year and its market capitalisation crossed the $7 Bn mark.

But, just when it seemed that the company was set to end 2023 on a high and further capitalise on the bull run on the bourses next year, the tightening of norms by the Reserve Bank of India (RBI) for unsecured lending came as an unexpected setback. 

Following this, Paytm decided to scale down its postpaid loan vertical, which resulted in the stock losing steam and its market cap falling back to the $4 Bn level. As of December 22, the stock ended at INR 641.90 on the BSE, up a mere 21% year to date.

While the exact impact of the company’s decision to reduce the focus on low-ticket-size loans will be clear in the quarters ahead, let’s take you through the journey of the Paytm stock in 2023 — its substantial hits and major misses.  

Taking A Note Of Paytm’s 2023 Milestones      

Paytm’s loan disbursement business contributes a comparatively smaller portion to the overall revenue stream than its payments business. However, over the last one year, Paytm doubled down on two of its key metrics – loans and merchants. 

In its last reported quarter, Q2 FY24, Paytm’s total operating revenue jumped over 32% year-on-year (YoY) to INR 2,519 Cr and revenue from payment services to consumers registered a slight YoY rise to INR 579 Cr.

Meanwhile, income from payment services to merchants surged sharply to INR 921 Cr and revenue from financial services and others, including its loan business, jumped to INR 571 Cr. 

Paytm’s loan disbursement amount and value increased consistently on a month-on-month basis, registering small spikes in the stock.

Besides, Paytm made multiple new announcements during the year, maintaining its uptrend. This was despite regulatory uncertainties for the fintech sector.

Some of the key announcements made during the year are as follows:

• Rolled out UPI SDK (Software Development Kit), allowing merchants to receive payments from customers easily
• Partnered with the State Bank of India (SBI) to launch Paytm SBI Card on the RuPay network 
• Launched two new variants of its soundbox device – Music Soundbox and Pocket Soundbox, adding an entertainment element to the payments device for its merchant network
• Announced plans to build artificial general intelligence (AGI) stack 
• Paytm Payments Services launched the industry’s first alternate ID-based guest checkout solution for merchants

Meanwhile, Paytm’s declining YoY losses, as well as highly bullish commentary from some of the major brokerages, further helped the shares touch the INR 980 level in October from INR 530 at the end of 2022. Notably, the company turning adjusted EBITDA profitable in Q3 FY23 contributed to the rise in stock price. 

However, the shares lost a bit of their upward momentum after Paytm announced its Q2 FY24 earnings. This was because the company missed the Street’s EBITDA margin estimates, even though its loss narrowed to INR 291.7 Cr. 

While many brokerages reiterated that Paytm would turn profitable by FY25, apprehensions around increasing competition from the likes of Jio Financial Services, PhonePe, GooglePay, and others kept everyone cautiously optimistic.

A further fall of over 20% hit Paytm after it decided to scale down its small-ticket loans of less than INR 50K, which predominantly comprise its postpaid loan or BNPL business. 

Here are some interesting takeaways:

• Below INR 50K loans comprised 72-75% of its total disbursements in the BNPL category in Q2
• Paytm disbursed postpaid loans worth INR 9,010 Cr, which jumped 122% YoY in the quarter
• Postpaid loans contributed a major 56% of its total lending value in Q2
• Merchant and personal loans accounted for 20% and 24% of the total value of loans disbursed, respectively, in Q2.

Amid all these, Paytm sacked over 1,000 employees a few days before stepping into 2024, citing the increased usage of AI-led automation. However, the company also claimed that its core payments business may see an increase of 15,000 employees in the coming year. 

Now, most analysts opine that Paytm’s growth will slow down next year while the path to profitability could get stretched further.

Nevertheless, the surge in Paytm’s share prices in 2023 saw many of its early investors selling their stakes and some even exiting the company.

So, Who Holds How Much Stake In Paytm?

Amid the profit booking spree of marquee investors in the realm of new-age tech stocks, the likes of SoftBank, Alibaba, and Antfin sold their stakes in Paytm in 2023 via multiple block deals. Most recently, Warren Buffett-led Berkshire Hathaway exited the fintech major by selling shares worth about INR 1,370.6 Cr.

This selling spree has impacted the FDI shareholding in the company, which fell to 39.52% by the end of September quarter 2023 from 71.49% a year ago.

This also coincided with Sharma upping his stake in the company. He became a significant beneficial owner (SBO) of Paytm after Resilient Asset Management, wholly owned by Sharma, increased a 10.3% stake in Paytm following Anfin offloading them.

By the end of September quarter 2023, Sharma held a 9.12% stake in the company against an 8.91% stake at the end of the year-ago quarter.

Moving on, mutual funds were relatively less interested in investing in Paytm compared to Zomato. As many as 19 mutual funds held a 1.26% stake in the company in the quarter ended September 2022, which rose to 2.79% a year later, with 19 mutual funds holding stakes.

What’s Next For Paytm?

Following the decision to scale down the small-ticket loan vertical, Sharma, in an interview, said that the company is now focusing on three key areas:

• Strengthening its online wealth management services, Paytm Money
• Continuing to tap into more merchants 
• Doubling down on AI automation to cut employee cost

Paytm is banking on this strategy to turn operationally profitable within a year. 

However, not everyone is so positive. Recently, Goldman Sachs extended its profitability projections for Paytm to FY26 from FY25 earlier. Jefferies, too, slashed its revenue estimates on the fintech major by 3-10% for FY24 to FY26, leading to an adjusted EBITDA cut of 12-15%.

Motilal Oswal, which earlier expected Paytm to report a profit after tax (PAT) of around INR 290 Cr in FY25, now expects the company to merely break even by the same time. It slashed its adjusted EBITDA estimates by 11-16% for the FY24-FY25 period.

This extended timeframe to achieve profitability is expected to hurt Paytm’s share price in the medium to near term.

Rupak De, senior technical analyst at LKP Securities, told Inc42 that Paytm might rise towards the INR 700-INR 720 level in the near term, but as investors start to book profits, the stock may tumble again. The support for the stock remains at INR 590 right now, below which the shares could plunge to INR 500 as well.

According to De, Paytm is a sell-on-rise stock right now.

Echoing a similar sentiment, Kush Ghodasara, CMT and an independent market expert, said that Paytm shares are looking weak on the technical charts and until they cross the INR 780 level, the shares will see selling post every major rise. There is a possibility that the stock could also revert to the INR 400 level once again, he added.

“From a technical perspective, when the broader market is at an all-time high and one stock is trading below the 200-day moving average, that is not a good sign,” Ghodasara said. “The buzz that was around Paytm during its listing, that fizz is now gone.”

While it remains to be seen if the revamped business strategy helps Paytm regain market confidence, the large block deals by major shareholders are expected to continue to drag the shares down at frequent intervals in the upcoming year. 

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