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Discussions ongoing for Paytm’s events & movies business

Zomato and Paytm (SELL; TP INR 300) in their respective filings with the exchanges have confirmed media reports that they are in active discussions for transfer of the latter’s movies and events business to the former. However, both mentioned that currently there is no binding agreement that would necessitate additional disclosures or board approval. As per the aforementioned media reports, the potential deal value could be ~INR 15bn-20bn, which, as per our estimates, would value Paytm's movies and events business at 5x-7x FY24 sales. Successful closure of such a deal will likely strengthen Zomato’s Going-out business, which includes Zomato Live that competes with Paytm’s events ticketing vertical. The deal could catapult Zomato to second position in the events & movie ticketing space, behind only Bookmyshow. Media reports had earlier indicated that the company was planning to invest INR 1bn in its wholly-owned subsidiary Zomato Entertainment Pvt. Ltd. that operates its live events and ticketing business. JM’s BFSI analyst Sameer Bhise says that for Paytm the development is in line with its stated strategy of focussing on the payments and financial services business. Incrementally, cash realisation from this sale should aid Paytm as it reenergises its marketing spends.

* Understanding Zomato’s current exposure to entertainment market: Zomato’s Going-out segment consists of two sub-segments (a) dining-out business in India and UAE and (b) Zomato Live ticketing business, that enables discovery and ticketing of outdoor events such as Food Carnivals, Music Concerts and other live events in India. In the past, the management had indicated that Going-out could be the 4th large business coming out of Zomato. While both these businesses are currently offered through a separate tab embedded in the Zomato app, the company has been contemplating spinning out the Going-out business into a separate app, as part of its strategy of building super brands (and not super apps).

* Deal rationale: The M&A in discussion with Paytm will likely help bolster Zomato’s presence in the events ticketing space as Paytm offers broadly similar services to Zomato Live through its Paytm Insider platform (through its wholly-owned subsidiary Wasteland Entertainment Pvt. Ltd.). In fact, in FY23, Paytm Insider was >3.5x the size of Zomato Live in revenue terms (refer exhibit 1), likely due to access to a wider range of events as well as event genres such as sports, theatre & art, and workshops among others. Moreover, Paytm operates TicketNew, an online movie ticketing platform (through a wholly-owned subsidiary Orbgen Technologies Pvt. Ltd.) where Zomato has no comparable offering at the moment.

* Deal valuation and impact on financials: Media reports are speculating a deal value of ~INR 15bn-20bn. While Paytm in its quarterly filings does not disclose revenue or profitability of its events and movie verticals, JM’s BFSI analyst Sameer Bhise estimates total revenue of INR 2.75bn–INR 3.0bn for the verticals in FY24. This implies a likely valuation of 5x-7x FY24 sales. Note that the deal would potentially add only c.2.5% to Zomato’s FY24 consol. revenue. On the other hand, the impact on profitability is difficult to ascertain at the moment as annual subsidiary level disclosures come with a lag. Zomato’s balance sheet remains healthy to facilitate the deal with net cash balance of INR 122bn as of Mar’24.

* What is Zomato Live? Zomato Live is a ticketing business that enables discovery and ticketing of events such as Food Carnivals, Music Concerts and other live events in India. Revenue streams include (1) take-rate from third-party event organisers on sale of tickets through Zomato platform (2) ticket sale collections for events managed by Zomato (e.g., Zomaland) (3) sponsorship revenue relating to Zomato live events and (4) rentals and commission charged on sale of food & other products from restaurants / merchants participating in Zomato managed live events. In FY23, the business sold a total of 190k tickets on its platform and reported revenue of INR 529mn.

* What is Paytm Insider? Paytm Insider is a market place through which Paytm sells online tickets for live events and offers digital marketing, on-ground technology-led crowd management solutions, and fan-club management to event partners. The company also provides event partners’ insights that help them decide location, pricing and the size of events.

* Competitive dynamics: Founded in 1999, Mumbai-based Bookmyshow is the largest events and movie ticketing platform in India. The company offers online ticketing services for movies and events to customers through its entertainment ticketing platform namely www.bookmyshow.com. It is also engaged in providing turnkey ticketing solutions for events. In FY23, Bookmyshow reported Consol. Revenue/EBITDA/PAT of INR 9.76bn/INR 793mn/INR 857mn. Reliance (BUY; TP INR 3,320) through Network18 Media & Investments Ltd. is the largest shareholder in Bookmyshow with 39.3% stake on a fully diluted basis as of Mar’23.

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