Paytm shares surged over 5% today following the announcement of a significant deal where the fintech giant has agreed to sell its entertainment and ticketing business to Zomato for ₹2,048 crore. The move signals a strategic shift for both companies as they aim to bolster their core operations and expand into new verticals.
One 97 Communications, the parent company of Paytm, confirmed that it has entered into definitive agreements with Zomato, a leading food delivery platform, to divest its movie, sports, and events ticketing business. The transaction is expected to bring substantial cash inflow to Paytm, enhancing its liquidity and providing a stronger financial base to focus on its primary payment and financial services business.
Key Highlights of the Deal
– Transition Period: For the next 12 months, Paytm will continue to offer movie and event tickets on its app. Post this period, users will be redirected to Zomato’s upcoming app designed for the ‘going-out’ segment, which will include entertainment and event ticketing services.
– Impact on Zomato: Zomato’s shares also benefited from the news, rising by 2.71% to ₹267.00 apiece on the BSE. Analysts believe that the acquisition will significantly scale Zomato’s ‘going-out’ business, potentially adding a new growth engine for the company. Zomato’s management projects that the gross order value (GOV) for the ‘going-out’ segment could exceed ₹10,000 crore by FY26, operating near break-even on an adjusted EBITDA basis with a margin of 4-5% adjusted EBITDAM as a percentage of GOV.
Analyst Perspectives
The deal has drawn mixed reactions from analysts. Dipeshkumar Mehta, a Senior Research Analyst at Emkay Global Financial Services, expressed optimism about Zomato’s potential growth in the ‘going-out’ segment, maintaining a ‘Buy’ rating on the stock with a target price of ₹270 per share. Mehta emphasized Zomato’s strong execution track record as a confidence booster for the long-term value addition from this acquisition.
On the other hand, Emkay Global has a more cautious view on Paytm. Anand Dama, another Senior Research Analyst at the firm, pointed out that while the deal will boost Paytm’s cash reserves, it may not significantly impact the company’s earnings. He noted that the net value addition to Paytm’s stock price might be only ₹25 per share, which is lower than the current market reaction. Consequently, Emkay Global has issued a ‘Reduce’ rating on Paytm shares, with a DCF-based target price of ₹375 per share.
Market Reaction
As of 9:25 am, Paytm shares were trading at ₹587.90 apiece, up 2.58% from the previous close, while Zomato shares were up by 1.06% at ₹262.70 apiece on the BSE. The market’s response reflects investor confidence in the strategic decisions of both companies, though the long-term impact of the deal remains to be seen.
Strategic Implications
This deal marks a significant strategic realignment for both companies. For Paytm, the divestment allows a sharper focus on its core competencies in the financial services space, potentially reinvigorating its payment business through enhanced rewards and cashback programs. Meanwhile, Zomato’s foray into the entertainment and ticketing market could position it as a comprehensive platform for dining and entertainment, attracting a broader customer base.
As both companies transition through this period, the industry will be watching closely to see how these strategic moves unfold and impact their market positions.
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