The 11-year-old Paytm, a financial technology giant with majority investment from Chinese Alibaba Group and Japanese Soft Bank, has extended its losses in the second quarter ( July-Sept) to Rs 481.70 crore from Rs 376.60 crore in first quarter ( April-June) of 2021-22. The total income, however, has increased by 19.62 per cent to Rs 1,134.50 crore in the same period.
The first half losses (April -Sept) are at Rs 858.30 crore in 2021-22 as compared to Rs 723.60 crore in 2020-21. The total income has jumped by 47.95 per cent to Rs 2,082.50 crore in the same period.
Reflecting the concern of the public market, the stock of Paytm is trading below the offer price of Rs 2,150 per share. The current market price is down 17 per cent at Rs 1,781.50 per share. the company's market capitalisation is at Rs 1.15 lakh crore, which is bigger than many mid-sized banks.
There is a big difference between the private markets versus the public markets. The private market always values a business based on the disruption potential of an idea, the market size, potential for scale, the people behind the company etc. But the public market gives higher importance to break-even guidance and the path to profitability.
The major concern of investors includes the highly competitive and low margin payments business, which currently dominates the business mix. This Noida headquartered company is already moving from a low-margin payments business to areas like lending, investments, broking, wealth management, and insurance.
The real value for Paytm shareholders in the years to come will come from the lending business. The banks with low-cost current and savings account (CASA) make a good margin by lending for mortgages, car or personal loan. Paytm doesn't have the balance sheet strength to scale up the lending book.
The company is already into lending products like buy-now-pay-later ( BNPL) and the co-branded credit card business. But the company is not lending from its books instead it has tie-ups with non-banking finance companies and banks.
The company is also up against market savvy Zerodha and Upstox in the Investment space. Paytm Money, the investments and wealth advisory arm, have a ready customer base to cross sell investment products. The company, with almost zero acquisition costs, is offering easy to use online platform for investors to buy equity, play in futures & options, do mutual funds' investments, pension, and wealth management plans.
But this space is also dominated by banks promoted platforms like ICICI Direct and HDFC Securities. In addition, there are traditional non-bank entities like Edelweiss, Motilal Oswal, JM Financial etc. \
Paytm is also up against new-age players like Zerodha, Upstox, and 5paise, which have the first-mover advantage as some of them have innovated a lending model of margin trading over the top of zero brokerage. So, these players are actually making money in the margin lending than brokerage.
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