Why Paytm Share Price is Rising

Editor's note: A notification popped up on my phone this morning saying Paytm's founder and CEO Vijay Shekhar Sharma will purchase a 10.3% stake in the fintech company. This transaction will make him the largest shareholder in Paytm.

Shares of the company spiked around 8% at the opening bell as soon as the news was out.

Worth mentioning that Paytm's stock has been on an uptrend for the past couple of months.

Let's find out the reasons behind the rally and whether the new-age tech company is finally coming of age.

Why Paytm Share Price is Rising

There has been an incredible rally in the stock market recently. Many of the major indexes have completely erased the substantial, double-digit losses that they sustained earlier this year in March 2023.

Many investors have been caught off guard. And for good reasons, because the top investors across the world had predicted the bubble to burst sometime this year.

It's like a few weeks ago, investors were preparing for a multi-year unwinding of the bubble and were worried about the recession in the US. Obviously, these fears appear to be unfounded today.

My favorite part of all this euphoria is the performance of new-age tech stocks.

Take Zomato. The share price of Zomato has rallied hard off the bottom of Rs 40 per share price. The stock is now retesting its IPO price of Rs 76 per share.

Another example is Paytm. The stock is currently trading at its 52-week high.

Remember, these are companies yet to report profit. They're out of money and are burning a lot of cash.

Let's find out what's behind the sudden optimism surrounding Paytm and what lies ahead for the fintech company.

Why Paytm Share is Rising

#1 Strong operational performance

Paytm remains a loss-making entity at the net profit level. However, the company reported a positive adjusted EBITDA for the December 2022 quarter.

The management of the company, after witnessing a massive crash in its marketcap, realised that profit is an important line item for investors and markets.

Continuing the momentum in the March 2023 quarter, the company reported a strong operational performance.

The company's revenue from operations surged 52% to Rs 23.4 bn. It reduced losses to Rs 1.7 bn from Rs 7.6 bn a year ago, and Rs 3.9 bn in December 2022.

The company experienced a surge in consumer engagement, with the average monthly transacting users (MTUs) for April-May 2023 reaching a staggering 92 million (m). This figure marks a significant growth from the 74 m MTUs recorded during the same period the previous year.

As a result, the fintech major's overall GMV soared to Rs 2.65 trillion (tn).

There has also been a significant rise in the number of merchants opting to pay subscription fees for payment devices. In May 2022, the count stood at 3.4 m which has now increased to 7.5 m.

Update: In major news that can change the entire sentiment for new age tech stocks, Zomato last week reported that it turned profitable.

All eyes are now on Paytm.

The fintech company is also making its way to turning profitable. Paytm last week said its GMV rose 39% year-on-year (YoY) in July 2023 while the average monthly transacting users went up by 19% YoY.

The merchant payment volumes (GMV) for the month of July 2023 stood at Rs 1.47 trillion, marking a YoY growth of 39%.

Its loan distribution business marked a growth of 148% in July 2023. The number of loans disbursed through the Paytm platform in July stood at 43 lakh, which was up by 46% as against the year-ago period.

The average monthly transacting users (MTU) also rose 19% and stood at 93 million. Strong business performance across segments shows that Paytm has continued its expansion despite unfavorable macro-outlook.

#2 New RBI scheme

The other reason why Paytm shares are rising could be due to the recent Reserve Bank of India (RBI) circular on First Loss Default Guarantee Program (FLDG).

The central bank has launched a product widely used by fintech firms to form collaborations with banks and Non-Banking Financial Companies (NBFC).

Under FLDG, fintech companies help banks and NBFCs recoup losses that occur when customers default on payments. This is the first time that the banking regulator has explicitly approved such a product.

Industry experts rejoiced and said the scheme provides fintech firms a much-awaited opportunity to innovate and scale up their products.

#3 Vijay Shekhar Sharma becomes largest shareholder in Paytm

Paytm CEO on 7 August 2023 announced that it has entered into an agreement with Ant Financial to buy 10.3% stake in One97 Communications. Post the transaction, Ant will cease to be the largest shareholder in the fintech payments platform.

After the closing of this transaction, Sharma's shareholding in Paytm will increase to 19.42%, whereas Antfin's shareholding will reduce to 13.5%.

Note that Paytm does not have a promoter and Sharma was declassified as the company's promoter ahead of the listing. This deal won't have any impact on management control of Paytm.

According to reports, this move has reduced the Chinese exposure on Paytm to a large extent.

No cash payment will be made for this acquisition, and neither will any pledge, guarantee, or other value assurance be provided by Sharma, directly or otherwise, the company said in an exchange filing.

What's next?

In its latest concall, the company's management said they've completed R&D efforts and launched a new technology platform that can handle 10x more transactions than the current scale.

However, the management was also cautious about growth in the first two quarters of FY24 due to elevated interest rates. It expects higher growth in the second half.

While the stock has been on a good run for the past couple of weeks, the journey since listing has not been pleasant.

We've seen how damaging the selling can be once the post-listing, lock-in period ends for pre-IPO investors. The stock of Paytm has been hit by large block deals involving these pre-IPO investors.

If you don't have the stock in your portfolio, it makes sense to track the fundamentals closely. Decide only after you are sufficiently convinced the company is not only on the path to profitable growth and positive cash flow, but also has a strong, long term competitive advantage.

How Paytm share price has performed recently

In the past one year, Paytm share price has gained around 2%. In 2023 so far, the stock is up a massive 60%.

In the past two days, the stock has rallied around 15%.

However, Paytm is still far away from its listing price and even the issue price of Rs 2,150.

Paytm touched a 52-week high of Rs 915 on 19 June 2023 and a 52-week low of Rs 440 in November 2022.

About Paytm

Paytm is India's leading financial services company that offers payments and financial solutions to consumers.

It's an Indian-based mobile internet company and a subsidiary of One97 Communications Limited.

For more details about the company, you can have a look at Paytm's factsheet and quarterly result.

Also check out the video where Co-head of research at Equitymaster, Rahul Shah analyses Zomato and Paytm and says which is a better buy.

You can also compare Paytm with its peers.

Paytm vs Policy Bazaar

Paytm vs Zomato

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Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...