Rs 2,048 Crore Mega Cash Deal! Paytm To Sell Entertainment Ticketing Business To Zomato; BUY The 2 Shares?

In a major development, fintech giant One 97 Communications Limited (OCL), which owns the brand Paytm, has entered into definitive agreements for the sale of its entertainment ticketing business which includes movies, sports and events (live performances) ticketing to food delivery behemoth, Zomato. The deal is for the consideration of Rs 2,048 crore in cash. Both Zomato and Paytm shares are listed and will be in focus on Thursday.

Paytm-Zomato Deal:

Under the agreement, Paytm will transfer its entertainment ticketing business to Zomato by 1) Transfer of OCL's entertainment ticketing business to its 100% subsidiaries, Orbgen Technologies Pvt Limited (OTPL) and Wasteland Entertainment Pvt Ltd (WEPL), and 2) Selling 100% stake in its subsidiaries OTPL and WEPL, which operate the TicketNew and Insider platforms, respectively to Zomato.

As per the regulatory filing, the transfer will also include ~280 existing employees from the entertainment ticketing business.

During the transition period which is up to 12 months, Paytm said that the movie and event tickets will continue to be available on the Paytm app, as well as on the TicketNew and Insider platforms, ensuring a smooth and uninterrupted experience for users and merchant partners.

Paytm emerged as a leading player in India's entertainment ticketing sector after building its own from the ground with the acquisition of TicketNew and Insider for a total consideration of Rs 268 crores from 2017 to 2018. Paytm has also made further investments to scale up the business.

In FY24, the entertainment ticketing business of Paytm recorded revenue of Rs 297 crore and adjusted EBITDA of Rs 29 crore.

The reason behind Paytm's move to sell the entertainment ticketing business is that the company plans to sharpen its focus on core payment and financial services distribution.

In its regulatory filing, the company said, Paytm's move to sell its entertainment ticketing business underscores its core focus on payments and financial services distribution.

In recent quarters, the company has also expanded its offerings in insurance, equity broking, and wealth distribution, with a significant opportunity to cross-sell these services and grow its market presence as a leading financial services distribution player, it said.

Paytm spokesperson said, "We built the entertainment ticketing business by addressing the market needs of the time. Today, as it transitions to Zomato ownership, we thank every team member who contributed to building this business. It has been a privilege to grow this business with an incredible team. This move allows us to continue focusing on long-term growth in our core areas and value creation for all stakeholders."

For the mega deal, Deloitte Touche Tohmatsu India LLP provided transaction advisory and valuation, while Morgan Stanley assisted Paytm with a fairness opinion on the transaction. Luthra & Luthra acted as legal counsel to Paytm on the transaction.

The transaction is expected to close within this quarter, subject to the satisfactory completion of all closing conditions, it said.

Paytm-Zomato Share Prices:

After market hours of August 21, Paytm's share price stood at Rs 573.10 apiece with a market cap of Rs 36,471.19 crore. At the same time, Zomato shares were at Rs 259.95 apiece with a market cap of Rs 2,29,548.91 crore on BSE. During the day, Paytm shares jumped nearly a per cent, while Zomato was down by 1.2%.

Should you buy the shares?

Paytm Share Price:

In its latest report, StoxBox has recommended BUY PAYTM from for the target of 615 with a stop loss of 530 in the short term.

Technical Views: StoxBox said that after a significant 80% drop from its listing week high, the pattern analysis of PAYTM indicates potential signs of the stock reaching a bottom. The stock has recently shown a bullish cup and handle breakout, suggesting a possible reversal in trend. Also, the recent upward movement has been accompanied by short phases of accumulation, further reinforcing the potential trend. Moreover, the price action has reclaimed its 200 DMA, providing immediate support, which is a positive sign.

Fundamental Views: The brokerage has highlighted two key factors to why invest in Paytm shares. These are:

1. Paytm's business model is built on a large and active customer base of 7.8 million monthly transacting users as of June 2024. These users primarily use the app for UPI-based payments, bill payments, etc. It also supports Paytm's commerce business, which includes tickets for movies, air travel, sports events, and other services. This diverse customer base is instrumental in establishing Paytm's consumer loan origination portfolio.

Unlike many of its competitors who are primarily focused on point-of-sale and payment gateway services with little direct interaction with customers, Paytm has a significant presence among both consumers and merchants. This wide reach enables it to generate revenue from both merchants and consumers and allows for cross-selling opportunities, providing a stable business model that can better withstand regulatory and technological changes.

2. Paytm's performance during the quarter aligned with expectations and it focused on increasing the merchant and consumer base for cross-selling financial services. The company is also confident of meaningful improvement from Q2FY25, as the company restarted certain paused products and achieved steady growth in operating metrics.

StoxBox believes constant improvement in operating leverage will continue to drive its profitability. It added, "As we advance, 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 optimization."

Zomato Share Price:

Stoxbox has recommended buying Zomato shares for the target of 285 with a stop loss of 252 in the short term.

Technical View: As per StoxBox, Zomato's price has been on a strong uptrend since hitting a low point in January 2023 completing a full circle and indicating potential momentum in the ongoing price trend. Also, the stock has shown resilience to drawdowns below its shorter-term moving average, offering a
low-risk, high-reward opportunity. Further, Zomato displays improving EPS, price strength, and strong buyer demand, which are all positive signs.

Fundamental View: Here as well, StoxBox highlighted two investment rationales for Zomato. They are:

1. The company exhibits strong optimism regarding growth prospects across food delivery and quick commerce segments, with strategic investments to enhance customer experience and service quality. They are navigating challenges focusing on maintaining profitability and expanding market share.

2. Zomato's quick commerce segment, Blinkit, is on an aggressive expansion spree, with the management intending to double its store count in the year and hoping to increase its GOV by 4x in the coming fiscals. The management also plans to keep reinvesting into its quick commerce business to grow as fast as possible and capture a modest market share within this space.

Moving to its B2B business Hyperpure, the management believes that as the business scales, the growth rate will observe a slight downward trend but remain healthy and high. The company is focused on improving its growth prospects and expects the margin to improve as the business grows, StoxBox added.