1. Company & Business Strength: 9/10
Paytm was founded
in 2010 by Vijay Shekhar Sharma within fund of $2 million. It was first
functioning as a recharge platform mainly for pre-paid mobiles and DTH
services. In 2013 it added a data card, post-paid mobile, and landline bill
payments 2013.
In 2014, Paytm started to expand its business and Paytm Wallet was launched with
major players like Uber and Indian Railways adopting wallet in their apps or
website. In 2015, it also added metro recharges, electricity, gas, and water bill
payments It also ventured into the travel business like bus, and train tickets. By
then it had a user base of around 10 crores+.
In
2015, Paytm received investments from the Alibaba group, backing from Ratan
Tata. In 2016, investment from Mountain Capital. Also in 2016 Paytm launched
movie tickets, amusement parks ticketing, flight ticket bookings, event
booking, and Paytm QR for shops and payments. Demonetization happened in Nov
2016, and Paytm was a major player to benefited from this for digital cashless
payments.
In 2017, Softbank invested in Paytm, bringing. In 2018 Warren buffet's Berkshire Hathaway invested $350 million for a ~4% equity.
Paytm was the leading payment solution for users to businesses and shops where most the business having Paytm QR codes for receiving payments. Paytm was then India’s first payment app to cross over 10+ crore downloads in google play.
After 2019 other players came into play with sa imilar business that includes Gray, Phone pay, and Bharat pay.
Business Segment:
The business model of Paytm is quite different and well-diversified from that of other Fintech. It has everything that 1 user needs. From payment services like bill payments, Paytm bank, shopping, Bookings, and Wallet to recently launched Mutual funds and a brokers. Paytm thus offers payment services, commerce and cloud services, and financial services.
It is one of the businesses that adopted great tech in a short period solving real world problems.
Payments- This has payment solutions like Bill payments, d2h, mobile, water, electricity, etc. Online transfers like UPI, and direct bank transfers.
E-Commerce- This included an eCommerce shopping app and website called Paytm mall, bookings like movies in partner with book my show, bus, train, flights,
Finance- This includes savings account called Paytm bank, fixed deposit in partner with bank, Credit and debit cards, and Newly launched loans with paperless processes.
Business Level:
Payments- This included shop/business QR with online and offline facility for those merchants who don't have a smartphone.
Merchant Services- This includes a variety of services to merchants like Khata, Advertising services, POS billing, nodal services, and others.
Financial services- Partnering with insurance and banks for insurance services and fixed deposits and savings accounts. Mutual funds listed in the Paytm money app, partner with gold to provide Gold services like Paytm Gold, pension accounts, etc.
Developer/IT Services- Paytm provides services like Paytm fraud management system and API services.
2. Competitive Strength: 8/10
Paytm is an Ecommerce/ New Age Tech company, it competitors like Indiamart, Zomato Ltd, Nykaa (FSN eCommerce), Info Edge, Justdial, and others.
Although direct competitors are mostly unlisted.
The ecommerce sector has always been competitive.
3. Stock Analysis Return & PE Ratio: 3/10
Paytm Stock is listed both in NSE, and BSE and currently trading around 900 (Jan 2022), with a 52 high in the 1900s and a low of 875s.
It has a market cap of 59000+ which is a Large cap, a Stock that has been very volatile after the IPO listing in 2021 and has given negative returns after the listing.
The stock has given a -41.4% return in the last six months. Although we should not decide based on a very short period.
The face value is 1, so expect bonuses and buybacks.
PE Ratio: Paytm has a PE of 0 (Negative) currently which is due to no earnings.
4. Dividend: 1/10
The stock has not given dividends (0%) after listing. Generally, we expect a growing company to give atleast 1% dividend which is a good gesture and sign unless high Capex is planned.
Financial Ratios:
5. Sales Growth/Revenue: 3/10
The Sales growth indicates that the company can capture the market, and which may increase profitability.
Paytm has a 3-year median Sales growth of -3.71% which is bad. Current year (2021) growth stands at -14.38%. For Large caps, we consider the growth of atleast 15%+ as healthy sales.
6. Profit Growth: 3/10
Sales growth indicates a good income, but unless profit is not made it's terrible. Profit growth indicates how expenses are managed or also how the company has pushed the raw material prices to end customers.
Paytm Profit growth stands at a 3-year median of -1.58% which is bad, Current year stands at 44.93%. For a Large cap, atleast 15-20+%+ is considered healthy growth in Profitability.
7. [ROE] & [ROCE] %: 2/10
Return on Equity:
ROE indicates the ability to generate profits from shareholders/Equity Investments. Paytm ROE has a 3-year median of -21.21%. The current year stands at--21.21%.
We consider a healthy ROE to be atleast 20% for growth companies.
Return on Capital Employed:
ROCE indicates the ability to use its capital employed for business. Paytm ROE has a 3-year median of -18.88%. The current year stands at -18.88%.
We consider a healthy ROCE to be atleast 20% for growth companies.
8. Debt/Equity: 9/10
D/E is a measure of which a company is running through debts vs owned funds. Ideally, D/E should be less than 1, which indicates stability.
Paytm has a D/E of 0.08 which is negligible. Unless capital expansion or any other is required, a low debt is always good to maintain profitability.
We consider debt-free or D/E<0.1 to be healthy.
9. Shareholding %: 8/10
The company has a Promotor holding of 0%. The FII and DII of 11.04% and 4.64% indicate Institutions have good holding, and the Remaining are Public with 89.58%. Although the promotor is 0% it is mainly held by Public companies like Info edge (15%) with major, the rest include other strong holdings from Antfin Netherlands, SVF India Holdings, Saif Mauritius, Alibaba, Berkshire Hathaway, Sapphire Ventures & others.
Note: The Promoter Pledging % is 0% which is good, generally no pledging indicates a good sign.
The other indicator like interest coverage ratio, Return on Assets[ROA], and others also seems not very good.
10. Future Prospects: 8/10
Pros:
India is moved to digital including Rural areas and Paytm may benefit the most in the future due to the one business model in Fintech.
The company is almost debt free and also has good reserves.
Paytm is highly benefitted from Digital India especially cashless payments and also due to demonetization.
Cons:
High valuation due to hype of far future growth.
Tough competition from other players in this space.
Poor financials in terms of Revenue, Profit, ROE, ROCE, etc.
Short-term expenditures and cash burn in terms of advertisement etc for brand and market capture.
Investment Hacks Score Card:
The average score of Paytm based on all factors comes to be 5.4/10.
Conclusion:
Overall One 97 Communications Ltd [Paytm] seems to have a good Business Model by adapting the latest tech, Customer, and Merchant databases with reaching most cities and rural areas. Very well a diversified business portfolio too.
The stock has not given any return to shareholders from listing and in fact, is listed on high valuation due to future growth hype. Although this is Large cap stock, Investors can see volatility in the future due to recent listing and high expectations and should carefully watch future plans and growth.
The business may really grow in the future due to growth in the fintech space and Paytm has an excellent business model, but Investors should also note competition has become high now after other giants entered into this unlisted space. So Investors should have a long-term vision where Paytm can do well if adapted to future changes.
Disclaimer:
Since this is an educational opinion, Please research thoroughly or consult your financial advisor before Investment.
Hope you found this analysis useful. please share this with others if you found this useful. Please wait for other stocks/crypto analyses which will be available soon!.
Happy Investing!.
Team Investment Hacks
Comments
Post a Comment