SoftBank sells another 2% stake in Paytm; share closes in the red

Shares of fintech major Paytm parent One97 Communications Ltd closed in the red today amid the development that one of its biggest backers, Japanese investment behemoth SoftBank's India entity, SVF India Holdings, has pared its stake in the company.

SoftBank has sold another 2% stake in One97 Communications in the past months through open market operations, Paytm says via an exchange filing. Estimates as per the share price range suggest the current stake sale could have fetched around ₹950 crore to SoftBank.

"SVF India Holdings (Cayman) Limited has disposed of an aggregate of 12,706,807 equity shares of One97 Communications Ltd in a series of disposals undertaken between December 19,2023 and January 20,2024, with the disposal on January 20, 2024 breaching the 2 percent threshold specified in Regulations 29(2) of the Sebi Takeover regulations," Paytm says in a statement today.

The global investor owned around 7% stake in Paytm in 2023, which now stands reduced to about 5%.

Masayoshi Son-led SoftBank, an early investor in Paytm, has been selling its stake in Paytm in tranches after the one-year lock-in for pre-IPO investors ended in November 2022. Before this, SoftBank had offloaded a 2.01% stake in One97 in July 2023 through an open market transaction in order to comply with SEBI regulation.

Paytm shares closed 0.36% down at ₹752.70 on the BSE today. After opening a gap down, the shares fell to an intra-day low of ₹744.15 before settling above the ₹750 level. At the current share price, the company's m-cap stands at ₹47,802.50 crore. Paytm shares have surged 41.83% in the past year, while the scrip has seen a 19.64% rise in the past month.

In line with expectations, Vijay Shekhar Sharma-led fintech reported a reduction in losses and a significant jump in revenue in the October-December quarter of 2023-24. The Noida-headquartered firm’s revenue surged 38% YoY to ₹2,851 crore in Q3 FY24, driven by accelerated GMV growth, device addition, and financial services business. The company's net loss improved by ₹170 crore year-on-year to ₹222 crore from ₹392 crore loss in the year-ago period.

Notably, UBS on January 16 had initiated its coverage on the Paytm stock, saying that the company is finding its "footing". "Paytm's strong top-line CAGR of 54% in FY21-24E has been driven by its core payment business and supported by device and loan origination monetisation. Its profitability dynamics have also improved," says UBS. It viewed EBITDA break-even and EBITDA growth as a "key re-rating trigger" and initiated coverage with a "Buy" rating and a ₹900 price target.

On Paytm’s profitability, UBS says it could “possibly” be profitable. “60% of India's P2M payments are via UPI, which does not have any MDR, driving accelerated adoption among merchants. On the other hand, this has hurt monetisation for payment service providers. Cards and pre-paid instruments (PPIs), which have a 35% share in payments, have an MDR that supports payment service providers.”

However, the government has become more receptive to UPI player monetisation and started incentives in FY23 (₹2,600 crore), which accrue to Paytm as a payment service provider, says UBS. Moreover, it says, the National Payments Commission of India (NPCI) is also in favour of MDR introduction on UPI P2M transactions in upcoming years.

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