Why Paytm Share Price is Rising

Recently, Paytm share price has defied odds, experiencing a surge after a prolonged period of decline.

Earlier in 2024, the company faced headwinds due to a regulatory hurdle - a ban imposed by the RBI on its subsidiary, Paytm Payments Bank, from onboarding new customers. This action contributed to a significant drop in Paytm share price.

However, the tide seems to be turning.

Over the past month, it has exhibited a remarkable turnaround, rallying 13.3%. This sudden shift in investor sentiment begs the question: what's driving this recent uptick in Paytm share price?

#1 Speculative Media Reports

Paytm's recent rally was initially fueled by speculation of a potential investment by the Adani Group.

Reports surfaced on 29 May 2024 suggesting that Adani and Paytm founder Vijay Shekhar Sharma met to discuss a stake purchase in One 97 Communications, the parent company of Paytm.

This news sparked excitement among investors, with the prospect of Adani's involvement seen as a positive sign for Paytm's future.

However, the news turned out to be just air and sentiment died down.

Until today...

According to another media report, CEO and founder of Paytm, Vijay Shekhar Sharma is reaching out to his old allies and trusted lieutenants as he looks to revive the firm that has weathered a regulatory upheaval and reported internal discord.

However, it's important to note that Paytm has denied these reports.

#2 Circuit Revision

Paytm stock price experienced a period of significant volatility in the wake of the RBI's restrictions on its subsidiary. This volatility led stock exchanges to implement a stricter control mechanism - the circuit filter.

Circuit filters act as a safety net during periods of high volatility. They essentially halt trading when the stock price moves up or down by a certain percentage within a short period.

Thus, after RBI's ban Paytm's circuit limit was reduced to 5%.

However, the initial 5% circuit limit for Paytm might have been considered overly restrictive as the situation stabilised.

In essence, the initial 5% circuit limit was a precautionary measure during a period of high volatility. As the situation around Paytm stabilised, the exchange raised the circuit limit back to 10% to allow for more flexibility and a more efficient market.

#3 Recovery in UPI Transaction

Paytm is reporting positive signs in its Unified Payments Interface (UPI) business, with early signs of recovery and strong stabilisation. This is reflected in the May 2024 figures.

In May 2024 total value of UPI transactions processed on its platform rose to Rs 1.24 trillion. This growth is attributed to several new initiatives like creditcCard on UPI and UPI Lite.

Additionally, the total number of transactions on the platform reached a stable point of 1.14 billion (bn) in May, solidifying Paytm's position as the third-largest player in terms of market share since becoming a third-party application provider (TPAP) in March.

Paytm's leadership in peer-to-merchant (P2M) UPI transactions remains unchallenged, thanks to its extensive network of merchants.

This positive performance by Paytm aligns with a national trend of increasing UPI usage.

#4 Good Financial Results

For FY24, the company reported a 25% increase in revenue reaching Rs 105.2 bn compared to Rs 84 bn reported in FY23.

This growth was driven by gross merchandise value (GMV) growth, device additions, and growth in the financial services distribution business.

Growth in revenues led to a subtle decrease in the company's net loss. In FY24 its net loss stood at Rs 14.2 bn, down 20.2% from Rs 17.8 bn reported in FY23.

Its net payment margin went up 50% to Rs 29.6 bn due to the increase in payment processing margin and an increase in merchant subscription revenues.

In FY24, the company achieved the first full year of earnings before interest, tax, depreciation, and amotisation (EBITDA) profitability since IPO at Rs 5.6 bn.

What Next?

Paytm estimates a Rs 5 bn EBITDA impact, of the embargo on Paytm Payments Bank (PPBL) products. The most significant effect of the same is expected in Q1 FY25 as most of these products being operational for most of Q4 FY24.

Disruptions in operating metrics like monthly transacting users (MTU), merchant base, and GMV are also anticipated to cause an incremental EBITDA impact of Rs 1-1.5 bn in Q1 FY25.

However, Paytm expects improvement from Q2 FY25 onwards, based on the stabilisation or growth in its consumer and merchant base starting from April/May.

Additionally, prudent measures taken in line with regulatory guidance are expected to result in a temporary Rs 0.8-1 bn EBITDA impact in Q1 FY25.

Considering these factors, the company's Q1 FY25 revenue is projected to be in the range of Rs 15 to Rs 16 bn, with EBITDA before employee stock ownership plan (ESOP) costs being negative, ranging from Rs 5-6 bn. This includes the company's investments in marketing to acquire new customers.

Paytm remains confident of a significant improvement from Q2 FY 2025 onwards. This optimism stems from its plan to restart certain paused products and achieve steady growth in key operating metrics.

The company is also taking steps to optimise its cost structure by implementing a leaner organisational structure by reducing it staff size. It aims for annualised people cost savings of Rs 4-5 bn.

Beyond cost optimisation, Paytm is enhancing its governance structure across the company and all group entities. This includes appointing subject matter experts as advisors or independent directors, fostering greater regulatory engagement, and maintaining a higher focus on compliance, both in letter and spirit.

The company reaffirms its commitment to payments as its core business. Its primary focus will be on regaining its consumer and merchant base, and making targeted investments to bring them back to the Paytm platform.

It will also explore monetisation opportunities by cross-selling financial services in line with regulatory guidelines, and by expanding its offerings through insurance and equity broking & distribution.

How Paytm Share Price has Performed Recently

In the past five days, Paytm share price has rallied 8.8%. In the last month, it is up 13.3%.

In 2024 so far, its share price has tumbled 39.8% and it's down 52.1% in the last year.

The stock touched its 52-week high of Rs 998.3 on 20 October 2023 and a 52-week low of Rs 310 on 9 May 2024.

About Paytm

Paytm is India's leading financial services company that offers payments and financial solutions to consumers.

It's an Indian-based mobile internet company and a subsidiary of One97 Communications Limited.

For more details about the company, you can have a look at Paytm's factsheet and quarterly result.

You can also compare Paytm with its peers.

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Happy investing!

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