Zomato, Bookmyshow: What if Paytm deal talks materialise; here's stock price target

The deal talks between Zomato Ltd and One 97 Communications Ltd (Paytm) for latter's movie ticketing platform, if materialise, could 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, JM Financial said in a note.

The potential deal value could be Rs 1,500-2,000 crore, which as per JM Financial estimates, would value Paytm's movies and events business at 5-7 times FY24 sales.

Zomato’s Going-out segment consists of two sub-segments: dining-out business in India and UAE; and 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)," JM Financial noted.

It said 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).

In FY23, Paytm Insider was over 3.5 times the size of Zomato Live in revenue terms, likely due to access to a wider range of events as well as event genres such as sports, theatre & art, and workshops among others. Paytm also operates TicketNew, an online movie ticketing platform (through a wholly-owned subsidiary Orbgen Technologies) where Zomato has no comparable offering at the moment.

JM Financial said while Paytm in its quarterly filings does not disclose revenue or profitability of its events and movie verticals, its BFSI analyst Sameer Bhise estimates total revenue of Rs 275-Rs 300 crore for the verticals in FY24.

"This implies a likely valuation of 5-7 times FY24 sales. Note that the deal would potentially add only c.2.5 per cent to Zomato’s FY24 consolidated revenue. On the other hand, the impact on profitability is difficult," it said.

Media reports had earlier suggested that the company was planning to invest Rs 100 crore in its wholly-owned subsidiary Zomato Entertainment that operates its live events and ticketing business.

JM’s BFSI analyst Sameer Bhise said the development is in line with Paytm's stated strategy of focussing on the payments and financial services business. Incrementally, cash realisation from this sale should aid Paytm as it re-energises its marketing spends.

For now JM Financial has kept its target price and rating for Zomato unchanged at Rs 250.