Paytm Posts First Net Income After Selling Assets to Zomato
Paytm, the Indian fintech giant trading as One 97 Communications Ltd., has announced its first-ever net income, greatly influenced by a significant gain from selling its events business. This financial milestone marks a critical turn for Paytm, as the company struggles to recover from setbacks imposed by regulatory controls.
In the quarter through September, Paytm reported a net income of 9.3 billion rupees ($111 million), buoyed by a 13.5 billion rupee gain, as stated in its recent financial disclosure. Analysts had anticipated a loss of 6.3 billion rupees, yet the actual figures surpassed expectations despite a drop in sales, which fell by 34% to 16.6 billion rupees. Although the company’s shares initially slid by as much as 5.8%, they managed to recoup much of these losses in early trade.
The company is striving to overcome its previous challenges following a regulatory onslaught that negatively impacted its stock value, fostering uncertainties about its long-term viability. In an environment of intense competition from companies such as Google in the digital payments realm, Paytm is making concerted efforts to retain its user base while further expanding into loan services.
The regulatory difficulties for Paytm began when Indian regulators imposed a near shutdown of its banking affiliate in early 2024. After years of warnings concerning unregulated data flows between this unit and the larger fintech operation, the decision severely disrupted Paytm’s payments processing and broader business functions. This situation prompted Vijay Shekhar Sharma, Paytm’s charismatic founder, to seek deeper alliances with other Indian banking entities. Even now, the company is still waiting for clearance from India’s central bank and a payment authority to stabilize much of its operations.
Nonetheless, Paytm’s shares have regained a substantial portion of their losses experienced in February when regulatory actions led to a more than 50% fall. As part of its strategy to recover focus, Paytm has reduced its workforce and divested non-core assets like its movie and events ticketing business to Zomato Ltd. for $244 million. This pivot aims to sharpen its concentration on payments, cash-backs, and financial services distribution, especially loans, crucial for broadening its merchant base and boosting revenue streams.
Recently, Paytm achieved a modest victory by gaining federal approval to invest in its primary payments gateway division. This investment is viewed as a step towards securing a license as a payments aggregator, a process that has been pending with the Reserve Bank of India since 2022. At that time, the central bank had also prohibited the company from enlisting new online merchants.
According to Bloomberg Intelligence, “Paytm’s sales and earnings declines should have bottomed out in fiscal 1Q ended June, when operating sales fell 36% and EBITDA (excluding employee stock-option expenses) moved to a loss from a previous profit year-over-year.” The improving recovery in merchant subscribers and active users signals a promising rebound in payment-services revenue from its clients, together constituting about 60% of fiscal 2024’s top line, over the ensuing quarters.
Under the leadership of Vijay Shekhar Sharma, Paytm has been at the forefront of the fintech revolution in India, pioneering mobile wallets and QR codes. The company’s impressive backers have included high-profile investors such as Alibaba Group Holding Ltd. founder Jack Ma, SoftBank Group Corp. chief Masayoshi Son, and Berkshire Hathaway Inc. Chairman Warren Buffett, propelling Paytm to the status of India’s most valuable startup at one point.
However, Paytm’s initial public offering in 2021 didn’t meet expectations, representing perhaps the first public challenge for Sharma, with the company’s stock yet to recover, remaining down over 60% from its original listing price. In India’s increasingly competitive digital payments landscape, Paytm battles major players such as Walmart Inc.’s PhonePe, Alphabet Inc.’s Google, and Jio Financial Services Ltd., led by billionaire Mukesh Ambani.
Paytm’s recent financial success, triggered by strategic asset sales and regulatory compliance efforts, signals a potential turnaround for the company, providing a glimmer of hope for its stakeholders and reinforcing its competitive position in the fintech market. As it continues its journey of recovery and growth, Paytm is focused on leveraging its core capabilities and partnerships to navigate the challenges and opportunities ahead.
