Paytm shares jump 10% on investment approval

Shares of Paytm parent One 97 Communications jumped 10% to hit the upper circuit limit on Friday after newswire Reuters reported that the government has approved the company’s investment proposal for its payment aggregator business.

The payment company’s stock opened lower at ₹458.15 against its previous closing price of ₹462.60. Reacting to the development, shares of Paytm parent hit a high of ₹508.85 on the BSE. The counter has fallen 35% over the past year and 21% in 2024.

Paytm founder Vijay Shekhar Sharma owns around 19% stake in One 97 Communications. Its other largest shareholders include venture capital firm Elevation Capital which owns a 15% stake and Alibaba which holds a 10% stake.

One 97 Communications’s net loss widened to ₹840 crore for the June quarter of the ongoing fiscal from ₹357 crore in the year-ago period, mainly due to the Reserve Bank of India's (RBI's) restrictions on its former associate entity, Paytm Payments Bank (PPBL). Paytm’s revenue declined 36% to ₹1,502 crore in Q1 FY25. The revenue included ₹900 crore contributed by the payments business, while ₹280 crore came from financial services and ₹321 crore from marketing services.

Earlier this year, the Reserve Bank of India ordered Paytm Payments Bank (PPBL) to stop accepting fresh deposits in its accounts and wallets from March 15. Paytm Payments Bank is 51% owned by Paytm founder and CEO Sharma while the remaining 49% is owned by One97 Communications.

Paytm Payments Bank products like the Paytm wallet and FASTag were distributed by Paytm. Due to the current embargo on these products, Paytm had said that it anticipates the steady state annualised direct impact on EBITDA to be around ₹500 crore. Most of this impact was seen in the first quarter of 2024-25.

Paytm's payments business revenue was impacted by the disruption of PPBL products; temporary impact on account of the conservative approach taken for certain businesses; and temporary disruptions in operating metrics. "No UPI incentive was received during the quarter as it gets paid in Q4 of the financial year," the company said.

Paytm has said it expects revenue and profitability to improve going forward. "Going forward, we expect revenue and profitability to improve, driven by growth in operating parameters such as GMV, an expanding merchant base, recovery in loan distribution business and continued focus on cost optimisation," the company said.

Paytm plans to prune its non-core businesses. The company is working on significant cost efficiencies including leaner organisation structure, Sharma had said. Paytm plans to cut down its employee costs, leading to savings of ₹400-₹500 crore.

The company's EBITDA loss before ESOP stood at ₹545 crore. Its cash balance as of June 30, 2024, stood at ₹8,557 crore compared to ₹8,650 crore as of the quarter ending March 2024.