Buffett Sells Paytm: What's Next?

Every year during the Berkshire Hathaway annual meeting, Warren Buffett remains as thoughtful and candid as ever. He still surprises everyone with his mental clarity at 93 years old.

Over the years, Buffett has allocated capital better than almost anyone and has been rewarded nicely for doing so. He has seen the wealth generation that is possible in the financial markets.

So, you could imagine why when there's news about Buffett's portfolio stocks, investors are all ears.

Last night post market hours, it was revealed that Buffett offloaded his stake in fintech company Paytm.

Warren Buffett's firm Berkshire Hathaway has sold its entire stake in One97 Communications, the parent company of fintech major Paytm, in a large block deal.

Berkshire Hathaway sold 15.6 million shares or 2.5% of equity worth nearly Rs 13.7 billion (bn) at a share price of Rs 877.29.

Buffett had picked up a 2.6% stake in Paytm in 2018, putting nearly Rs 22 bn. During the Paytm IPO, Berkshire Hathaway sold shares worth Rs 2.2 bn

Now this block deal sale at Rs 877 marks a loss of Rs 6 bn for Berkshire. The investing legend has now completely exited Paytm with almost a 40% loss.

Earlier in the day on 24 November 2023, shares of Paytm slipped 5% when rumours emerged that a large deal took place in Paytm in early trading hours.

Some of the shares sold by Berkshire Hathaway were purchased by Ghisallo Master Fund LP and Copthall Mauritius Investment.

Why are FIIs Exiting Paytm in Bulk?

This is not the first instance of a foreign institution (FII) exiting their stake in Paytm.

Several other multinational investment giants such as SoftBank and Antfin have also been offloading their stake in Paytm since last year.

Berkshire Hathaway's block deal comes three months after Antfin Holdings offloaded 22.7 million shares of Paytm or a 3.59% stake in the company in August 2023.

These sales could be a combination of the environment getting tougher for private equity (PE) firms as well as the valuations that are available in the market today.

If a lot of experts are to be believed, the era of ultra-low interest rates seems to be behind us. With interest rates likely to stay structurally higher, the PE firms need to turn more judicious with respect to the deals they enter.

Gone are the days when these firms used to fall over each other in trying to throw money at every big idea they liked. It is more about the numbers than narratives now.

Paytm is also trading at the highest level in many months so what better time to sell stakes than the current market where they are getting full bang for their buck.

Besides, these firms also need liquidity just in case things turn ugly in the west.

What the Future Looks Like for Paytm

Ever since the company reported a positive adjusted EBITDA in the December 2022 quarter, things have been turning around for the fintech company.

There has also been a significant rise in the number of merchants opting to pay subscription fees for payment devices.

Meanwhile, Paytm's CEO is also clearing the dark clouds when it comes to Chinese shareholding in the company.

Earlier this year in August, Vijay Shekhar Sharma announced that it has entered into an agreement with Ant Financial to buy 10.3% stake in One97 Communications.

Post the transaction, Ant ceased to be the largest shareholder in the company.

In the September 2023 quarter, Paytm narrowed its net loss to Rs 2.9 bn while total revenue grew 32% YoY to Rs 25.2 bn.

This growth was supported by healthy growth in GMV, disbursements, and addition of subscription devices.

The company's management has guided for a better Q2 as they expect volume growth in the next few quarters amid the festive season.

Paytm added two new lending partners during the quarter - Shriram Finance and Tata Capital. It plans to add three more in the next two quarters.

The company might face some challenges in the personal loans business as many established peers already control a larger base.

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 2023 so far, Paytm shares have gained 68%. Yesterday, the stock settled 3% lower at Rs 893.

Paytm has a 52-week high of Rs 998 touched on 20 October 2023 and a 52-week low of Rs 440 touched on 24 November 2022.

Conclusion

With this stake sale, Warren Buffett's bet on India's tech comes to an end.

It will be interesting to continue watching what the Oracle of Omaha does in the coming weeks and months.

People will read into his actions just as much as they will scrutinize his actions, if that ever happens.

Either way, it pays to take note of the world's best investor as he continues to share his intelligence and perspective in a unique way.

Happy Investing!

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...