What's going on in Paytm?

Rakesh from Noida has invested in Paytm stock but he is very confused. Confused because on one hand brokers are bullish on Paytm and are advising to buy this stock and on the other hand he has seen news of Softbank selling stake in Paytm recently.

Now the question in his mind is whether the brokers are blinded to stakes being sold by Softbank or is Softbank being seen differently by brokers who are giving Buy ratings?

So, let’s understand what has changed in Paytm, that brokers are upbeat and investors like Softbank are busy reaping profits.

First let’s understand how Paytm’s stock has performed.

This stock has shown good returns in the last 6 months. The stock has gained almost 30% in 3 months and more than 50% in 6 months. Not only this, the stock has shown more than 90% recovery from its 52-week low of Rs 438.35, touched by the stock on Nov 24, 2022.

That is, in about 8 months the stock has almost doubled from its 52-week low. Now what has changed about this company that the stock has zoomed so quickly? Paytm results have been improving swiftly since the listing. But the market has been waiting for the company to come into operating profit.

In the third quarter of FY23 i.e. the December quarter, the company recorded ‘adjusted operating profit’ for the first time. Although Vijay Shekhar Sharma had released an estimate of operating profit in the September 2023 quarter, while Goldman Sachs had projected Ebitda positive in the March quarter.

The company’s operating profit grew 7.5 times quarter-on-quarter in the March quarter and the company’s loss narrowed by 57% to Rs 168 crore due to continuous improvement in numbers.

Now the market is keeping an eye on when does the company achieves profit for the whole year and when does it return to profit on quarterly basis.

The company’s operating loss in FY23 declined by 88.4 per cent to Rs 176 crore.

Due to the improvement in the results, the stock has recovered from the lower levels after which now foreign investors like Softbank are selling their shares at profits. Softbank has raised around $200 million by selling 2% stake in Paytm through its investment arm SVF. SVF India Holdings sold a total of 1.27 crore shares between May 9, 2023 and July 13, 2023. After this share sale, SoftBank’s stake in Paytm has come down to 9.15 percent.

Softbank has been slowly selling stake in Paytm in the open market for about a month now and most trades are profitable because Paytm’s share has been above Soft Bank’s purchase price of Rs 830. Earlier, between February 10 to May 8, 2023, SoftBank sold 1.31 crore shares.

Although experts are not worried about the share sale, they believe that SoftBank has reduced its investment globally. According to the data shared in the earnings presentation,  SoftBank invested just $3.2 billion in FY23 while it had a total investment of $44.3 billion in FY22.

In India too, SoftBank participated in only 6 deals in 2022, whereas in 2021 it participated in 17 deals. SoftBank has been investing in India for many years. In the last 6 years, it has invested around $12 billion through 42 deals. Although this year Softbank has not made any investment in India. Maybe that’s why most of the brokers have also turned bullish on Paytm. Brokers’ outlook towards this stock has started changing since working profit came in.

At least five brokers have given a buy rating on Paytm, out of which three are from overseas. Goldman Sachs has given the highest target of Rs 1,150, showing an upside of about 36% from the closing of Rs 842.60 on July 19.

Hopefully, after getting all this information, the confusion in Rakesh’s mind would have ended and he would be able to easily apply his investment strategy on Paytm.