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Paytm to sell entertainment ticketing business to Zomato

* Paytm has agreed to sell its entertainment ticketing business to Zomato for INR20.48b in cash, which will allow Paytm to strengthen its focus on its core Payments and Financial Services Distribution business.

* The combined entertainment ticketing business is projected to generate INR2.97b in revenue and INR290m in adjusted EBITDA in FY24.

* Paytm earlier built its movie ticketing business from scratch, acquiring Insider and TicketNew for INR2.68b between 2017 and 2018.

* During the transition period (up to 12 months), movie and event tickets will remain available on the Paytm app, as well as on the TicketNew and Insider platforms, ensuring an uninterrupted experience for users and merchant partners.

* The transaction is expected to further strengthen the balance sheet for Paytm and will enable the company to focus on its core Payment and Financial business.

A brief summary of agreement between Paytm and Zomato

*  One 97 communications Ltd (OCL) will transfer its entertainment ticketing business to Zomato through a two-step process:

* Subsidiary Transfer: The entertainment ticketing business will be transferred to OCL’s 100% subsidiaries, Orbgen Technologies Pvt Ltd (OTPL) and Wasteland Entertainment Pvt Ltd (WEPL).

* Stake Sale: OCL will then sell 100% of its stake in OTPL and WEPL, which operate the TicketNew and Insider platforms, respectively, to Zomato.

* Around 280 existing employees from the entertainment ticketing business will be included in the transfer to Zomato.

Sharpens focus on core Payments and Financial Services business

With this sale, Paytm aims to refocus on strategic areas pivotal for its growth and sustainability after the sale. These areas include:

* Financial Products: Investing in its financial products such as credit cards, insurance, and loans to offer a more comprehensive suite of financial services.

* Merchant Services: Expanding its merchant base by providing better payment solutions and marketing services.

* Travel Services: Enhancing travel-related offerings, providing users with better deals on flights, trains, and bus bookings.

* Deals and Cashback: Strengthening the deals and cashback services to attract more customers and retain the existing user base.

Valuation and view

* The sale would enable a sharper focus on core business, travel, deals, and cashback services, which are crucial for expanding the merchant base and grow overall sales. This strategic move could enhance shareholder value by concentrating efforts on high-growth areas.

* The sale of its entertainment business would provide a financial boost, as this transaction will generate significant profits for Paytm, allowing it to reinvest in other high-potential areas. Cash proceeds will further strengthen the balance sheet. We estimate Paytm’s EBITDA to turn positive by FY27. We maintain our Neutral rating with a TP of INR550.

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