Paytm - One97 Communications founder Vijay Shekhar Sharma floats breakeven hope
PAYTM, the Indian digital payments pioneer grappling with a regulatory audit of its data-management systems, expects to break even on an operating basis over the next year-and-a-half.
Paytm Founder and Chief Executive Officer (CEO) Vijay Shekhar Sharma will receive his stock grants only after the company’s market capitalisation (m-cap) stabilises at its initial public offering (IPO) level, the financial technology (fintech) major said on Wednesday.
Fintech start-up One97 Communications on Wednesday said it should break even at an operating Ebitda (earnings before interest tax depreciation and amortisation) level in the next six quarters.
In a regulatory filing, it said the Ebitda break-even (before ESOP costs) could be achieved by the September 2023 quarter, well ahead of estimates of most analysts. The company’s growth plans, however, would not be compromised.
Paytm - One97 Communications latest news
Paytm’s stock price has been in free fall since its IPO at Rs 2,150 apiece, with m-cap at around Rs 1.4 trillion — plunging 76 per cent to a lifetime low of Rs 520 on March 23, when m-cap dropped below Rs 34,000 crore.
Since then, the company’s share price on the BSE has recovered some value and closed at Rs 637 on Wednesday. Yet, the Paytm stock will have to zoom 238 per cent for it to be on a par with the IPO price.
Apart from a global meltdown in technology stocks, Paytm has also faced the ire of analysts who have questioned its earnings from loan disbursements and a business model spread thin across Cloud services, gaming, and e-commerce.
Brokerage firm Macquarie has consistently downgraded Paytm’s target price (TP) since its listing in November last year. It again cut the fintech major’s TP to Rs 450 in March with an ‘Underperform’ rating.
In a letter to shareholders on Wednesday, Paytm CEO said the company is likely to be operating earnings before interest, tax, depreciation, and amortisation (Ebitda)-break-even in the next six quarters.
Paytm - One97 Communications stock latest update
“We should be operating Ebitda-break-even in the next six quarters (i.e., Ebitda before employee stock ownership cost, and by the quarter ending September 2023), well ahead of estimates by most analysts. Importantly, we are going to achieve this without compromising with any of our growth plans,” wrote Sharma.
“Against the backdrop of volatile market conditions for high growth stocks globally, our shares are down significantly from the IPO price. Rest assured, the entire Paytm team is committed to build a large, profitable company and create long-term shareholder value,” he added.
The company also said that the number of loans disbursed through its platform grew 374 per cent to
6.5 million loans in the March quarter, compared to the year-ago period. Meanwhile, the value of loans disbursed was Rs 3,553 crore — growing 417 per cent year-on-year (YoY).
Total merchant payment volume (gross merchandise value) processed through the platform during the fourth quarter of 2021-22 (FY22) aggregated to approximately Rs 2.59 trillion (or $34.5 billion) — marking a YoY growth of 104 per cent.
In the December quarter, Paytm saw its revenue increase 89 per cent to Rs 1,456 crore YoY, whereas net loss widened 45 per cent to Rs 778 crore.
However, the company had said its contribution profit (defined as revenue from operations less payment processing charges, promotional cashback and incentives, and other direct costs) improved to 31.2 per cent of revenue in the third quarter (Q3) of FY22, from 8.9 per cent in Q3 of 2020-21.
One97, which owns the fintech platform Paytm, has been haemorrhaging in the public markets after its much-celebrated initial public offering in November 2021. Though the stock went up by 5% to Rs 640 apiece after the announcement, it is still lower by 70% from the issue price of Rs 2,150.
Paytm CEO Vijay Shekhar Sharma
Sharma said in the filing that “our shares are down significantly from the IPO price, against the backdrop of volatile market conditions for high growth stocks globally”.
In mid-March, Macquarie cut its price target for the stock to Rs 450 from the earlier level of Rs 700. The brokerage argued that, to gain scale and size, fintechs need to go beyond distribution and lend for which they need licences. However, the probability of One97 getting a small finance bank (SFB) licence, it noted, is “significantly lower now”.
The brokerage was alluding to the regulator’s move to bar Paytm Payments Bank from on-boarding new customers. Media reports at the time had suggested the Reserve Bank of India (RBI) was uncomfortable with the Chinese ownership in One97 at 25% levels. The company had said it was taking prompt steps to comply with RBI’s directives. Experts say RBI’s regulations on digital payments and Buy Now Pay Later (BNPL), and stricter KYC and compliance norms will impact all fintechs and could lower their unit economics and growth prospects.
Meanwhile, One97 has sold 6.5 million loans in Q4FY22, recording a 48% quarter-on-quarter growth with the value of loans disbursed increasing by 63% q-o-q to Rs 3,553 crore. Moreover, it is working in partnership with marquee lenders to further scale its loan disbursement and servicing business. The total merchant payment volume (GMV) processed through the Paytm platform during Q4FY22 aggregated approximately Rs 2.59 trillion, marking a year-on-year growth of 104%.
Vijay Shekhar Sharma says
Vijay Shekhar Sharma, the founder of Paytm, on Wednesday said the fintech firm will break even at the EBITDA (earnings before interest, taxes, depreciation & amortisation) level within six quarters, which is far sooner than analysts estimates. Analysts at ICICI Securities had said the company would break even only by 2025-26.
In a letter to the shareholders, who have suffered a massive erosion in their investments, Sharma said break even would be achieved by September 2023.
This breakeven would exclude ESOP (employee stock option plan) cost. Paytm parent One97 Communications posted EBITDA loss (before ESOP) of Rs 393 crore in the third quarter against a loss of Rs 488 crore a year ago.
The loss was much higher if ESOP costs were considered — up to Rs 782.3 crore from Rs 529 crore a year ago.
Sharma wrote in the letter that Paytm would vest his stock grants on him only after the market cap crosses the IPO level on a sustained basis.
Shares of Paytm have plunged about 75 per cent to Rs 595 on Wednesday compared with its IPO price of Rs 2,150. The stock must rise a whopping 360 per cent before the ESOPs to Sharma will vest.
There has been little respite for the investors amid concerns over its road to profitability. On Wednesday, Sharma’s comments buoyed the One97 Communications scrip and it closed with gains of almost 5 per cent at Rs 637.15 on the BSE.
Paytm Latest breaking News
Paytm Latest News | New Delhi: Paytm’s CEO wrote a letter to the shareholders of the company stating that the company expects to break even at an operating EBITDA (Earnings Before Interest Tax Depreciation and Amortisation) by September 2023. The letter, shared by Sharma on his Twitter account, also said that the company disbursed 6.5 million loans in the last quarter, 48 per cent higher than the previous quarter.Also Read - IPL 2022: How Much Money Is Involved In Indian Premiere League Season 15?
The letter read, “I believe we should be operating EBITDA breakdown in next 6 quarters (i.e EBITDA before ESOP cost, and by the quarter ending September 2023), well ahead of estimates by most analysts.” The CEO also mentioned that ‘our shares are down significantly from the IPO price’. The shares of Paytm are down around 70 per cent from their IPO price of Rs 2,150 per equity share. Also Read - Bank Holidays In April 2022: Banks to Remain Shut on These Days |
To Get Stock Grants Only When M-Cap Crosses IPO Level
Sharma also wrote that his stock grants will be vested to him only when the market cap of Paytm crosses the IPO level, on a sustained basis. This might bring some relief to the investors, who have been in dire straits due to the continuous fall in the Paytm share price.
The Reserve Bank of India (RBI) had earlier barred Paytm Payments Bank from onboarding new customers. Media reports suggest that the central bank was uncomfortable with the 25 per cent Chinese ownership in One97 Communications Ltd, Paytm’s parent company.
The startup backed by SoftBank Group and Jack Ma's Ant Group predicts it will become profitable in 6 quarters on an operating earnings before interest, tax, depreciation and amortisation basis. That forecast followed a doubling of its gross merchandise value to 2.59 trillion rupees (S$46.6 billion) in the 3 months ended March, the company said in a statement on Wednesday (Apr 6).
The brand that listed as One97 Communications, which competes with the likes of Google Pay and Walmart's PhonePe, climbed more than 3 per cent after revealing its projection. It averaged almost 71 million transacting users in the quarter, it added.
Paytm founder Vijay Shekhar Sharma has been struggling to win back investor support since the company pulled off India's largest-ever initial public offering (IPO) in November, touted by some as a symbol of India's growing appeal as a destination for global capital. While the offering raised a record-setting US$2.5 billion, shares plunged 27 per cent on debut and have dropped more than 70 per cent from the 2,150 rupee IPO price.
Investors have grown increasingly wary of its longer-term growth prospects and potential regulatory tangles. In March, the central bank barred the company's lending venture from accepting new customers, citing concerns that it may have shared local users' data abroad, including with Chinese-based entities. Paytm has yet to appoint an independent firm to audit its practices. The company has shed about 70 per cent of its value since its IPO.
The 43-year-old Sharma, from the small central Indian town of Aligarh, founded One97 about 2 decades ago and won acclaim nationwide as a small-town-boy-made-big.
But analysts including those at Macquarie Capital Securities (India) have questioned his ability to turn Paytm - which also counts Warren Buffett's Berkshire Hathaway as an investor - into a profitable business anytime soon. BLOOMBERG
