Paytm reports first net profit after asset sale to Zomato

(Bloomberg) — Paytm reported its first-ever net profit, helped by a gain from the sale of its events business, as the Indian fintech pioneer struggles to recover from regulatory setbacks.

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The company, known as One 97 Communications Ltd. reported a net profit of 9.3 billion rupees ($111 million) in the quarter ended September, helped by a profit of 13.5 billion rupees, it said in a statement on Tuesday. Analysts expected a loss of 6.3 billion rupees. Revenue fell 34% to Rs 16.6 billion.

Its shares fell as much as 5.8% before recouping much of those losses in early trading.

Paytm is trying to turn things around after a regulatory onslaught that has sent its shares plummeting and raised questions about its long-term prospects. With intense competition in digital payments from companies like Google, the company is struggling to retain users while expanding in areas like lending.

Indian regulators ordered a near shutdown of Paytm’s banking subsidiary in early 2024 after years of warnings about unregulated data flows between that unit and the larger fintech. This disrupted the company’s payment processing and much of its overall business, forcing its charismatic founder Vijay Shekhar Sharma to forge deeper partnerships with other Indian lenders. The company is still waiting for approvals from India’s central bank and a payments authority to stabilize much of its business.

Shares of Paytm have recovered much of their losses since February’s more than 50% slump caused by regulatory restrictions.

Paytm has since reduced its workforce and sold its cinema and events ticketing business to Zomato Ltd for $244 million. sold. This sale is part of the company’s strategy to focus more on areas such as payments, cashback and distribution of financial services such as loans – businesses that are important for expanding the merchant base and increasing sales.

In August, the company also scored a small win when it received government approval to invest in its main payment gateway arm. The investment is a step towards obtaining a payments aggregator license, which has been pending with the Reserve Bank of India since 2022, when it also banned the company from adding new online merchants.

What Bloomberg Intelligence says

“Paytm’s revenue and profit declines are likely to have bottomed out in the fiscal first quarter ended June, when operating revenue fell 36% and Ebitda (excluding employee stock option expense) fell from a profit to a loss year-on-year. The recovery of merchant subscribers and transactional users are encouraging signs that underpin a recovery in payment services revenue for both customer groups over the next few quarters – together accounting for approximately 60% of revenue in fiscal 2024.”

– Nathan Naidu, Analyst

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Sharma pioneered the fintech industry in India with Paytm mobile wallets and then QR codes. He attracted backers including Alibaba Group Holding Ltd. founder Jack Ma, SoftBank Group Corp. chief Masayoshi Son and Berkshire Hathaway Inc. Chairman Warren Buffett, making Paytm once India’s most valuable startup.

An unfortunate debut in capital markets in 2021 may have been Sharma’s first public downturn from which Paytm shares, still more than 60% below their list price, have yet to recover.

Paytm competes with Walmart Inc.’s PhonePe, Alphabet Inc.’s Google and Jio Financial Services Ltd. of billionaire Mukesh Ambani in India’s crowded digital payments sector.

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