After Paytm announced that it would sell its tickets and entertainment division to food delivery service Zomato for ₹2,048 crore, the financial giant’s share price increased by more than 5%. The BSE saw a 5.47% increase in Paytm shares to ₹604.45, and a 2.71% increase in Zomato shares to ₹267.00 each.
Zomato will purchase One 97 Communications’ entertainment ticketing business, which includes movie, sports, and event ticketing, for ₹2,048 crore. One 97 Communications is the parent company of the massive financial company Paytm. These agreements are final.
During a transition phase over the next 12 months, Paytm’s movie and event tickets will remain available on its app. The customers will then be taken to Zomato’s future “going-out” app after that.
According to analysts, Zomato’s “going out” company gains size and scale with this acquisition, which might serve as an additional growth engine in the medium- to long-term. The agreement would support Paytm’s cash and cash equivalents, which it might utilize to expand the cash-back program and resurrect its payment business.
“Post-acquisition, Zomato’s management estimates going-out GOV at over ₹10,000 crore in FY26. Management expects the going-out business to operate near break-even on an adjusted EBITDA basis, while potentially delivering 4-5% adjusted EBITDA as a % of GOV over the medium-to-long term. Management’s strong execution track record grants confidence that going out will add further value over the long term,” said Dipeshkumar Mehta, Senior Research Analyst at Emkay Global Financial Services.
With a target price of ₹270 per share, the brokerage company has assigned a ‘Buy’ recommendation to Zomato shares.
Paytm’s current strategy is to concentrate on its primary financial services or payment sector. In contrast to the earlier proposed transaction for BookMyShow (7.7x FY23 revenue) by KKR, the deal values Paytm’s movie and event ticketing business at 6.9x FY24 revenue.
“In our view, the deal would shore up Paytm’s cash and cash equivalents, which would possibly be used to scale up the rewards/cash-back program to revive its dwindling payment business following the RBI action. The net one-off gains adjusted for the earnings outgo would reduce net loss in FY25E, but hurt future earnings,” said Anand Dama, Senior Research Analyst at Emkay Global Financial Services.
Rough proforma estimates suggest that the deal’s net value addition or impact on Paytm’s target price might be as little as ₹25 per share, he continued. This is far less than the stock price’s already observed reaction to the deal’s media coverage.
Emkay Global rates Paytm shares as “Reduce,” with a DCF-based target price of ₹375 per share.
At 9:25 a.m., Zomato shares were up 1.06% at ₹262.70 on the BSE, while Paytm shares were up 2.58% at ₹587.90 apiece.
