Paytm in focus ahead of lock-in expiry. Where is the stock headed?

Shares of fintech major Paytm were trading flat in the early trade on Wednesday a day after the company posted its earnings for the quarter ended September 2022.

The company reported a consolidated net loss of Rs 571 crore for the September quarter as against Rs 644 crore in the June quarter and Rs 472.90 crore in the year-ago quarter.

Read more: Paytm Q2 losses narrow sequentially to Rs 571 crore

Also, the revenue jumped 76 per cent year-on-year and 14 per cent quarter-on-quarter to Rs 1,914 crore with growth in lending, expansion in merchant subscriptions, and momentum in commerce and cloud with growth in advertising, resumption of ticketing volumes, credit cards and PAI cloud.

Paytm will complete its one-year listing on November 18. The stock is down over 66 per cent from its all-time high of Rs 1,961.05. Experts believe that the stock is likely to remain under pressure as the mandatory one-year lock-in expiry of pre-IPO investors ends in mid-November.

JM Financial sees limited fundamental downsides to valuation incrementally but the near-term event of lock-in expiry of pre-IPO shares (entire pre-IPO shareholding which is >85% of current shares outstanding) will lead to price volatility.

It believes incremental reduction on payment processing charges is difficult and scaling up the financial services business remains the key driver for sustainable profitability where we see risks to the current take rates. It has a 'Sell' rating on the stock with a target price of Rs 600.

According to Yes Securities, the contribution profit margin has improved 20 per cent points on a yearly basis but the sequential improvement is less than 1 per cent.

For the quarter, the factors driving improvement in the Contribution profit margin were the rise in profitability of the Payments business and the rise in the share of the Loan Distribution business, which is of higher margin. On the revenue front, traction for the financial services business has been particularly strong, it said.

The brokerage firm has a 'Neutral' rating on the stock with a target price of Rs 700.

Kranthi Bathini, Equity Strategist, WealthMills Securities said, “Some of the players have a strong business model. However, the way they came up with IPO had astronomical valuations. This is one reason for the sharp fall in their share price from their record high prices. However, investors with a high-risk appetite can consider these shares.”

November is all set to witness a huge supply of shares as lock-in periods of at least 10 companies including Nykaa, PB Fintech (Policy Bazaar), One97 Communications (Paytm), Tarsons Products and Go Fashion (India) are set to expire for pre-IPO investors.

Vijay Shekhar Sharma-led One 97 Communications made a tepid debut on November 18 last year. The scrip got listed at a discount of 9.30 per cent at Rs 1,950 on the NSE against the issue price of Rs 2,150 per share.