Paytm chief executive Vijay Shekhar Sharma has revealed the company will no longer commit to cash burn as part of the digital payment giant’s operations.
Shekhar Sharma was speaking at the Business Standard BFSI Insight Summit 2022 in Mumbai, where he provided unique insight into the company’s “re-setting” of its ambitions in terms of “controlling spends”.
Paytm, which is backed by SoftBank, embarked upon a major initial public offering (IPO) in 2021 which raised $2.5 billion and valued Paytm’s parent group, One97 Communications, at a staggering $20 billion.
However, it has since seen over two-thirds of its market capitalization disappear, with rising inflation and interest rates causing investors to be bearish towards high-growth tech stocks such as Paytm.
In addition, there is growing competition in the digital payments scene, with investors equally concerned about how big a slice of the pie Paytm can claim.
Earlier this month, Paytm’s board members voted to buy back its shares to the tune of 8.5 billion rupees. A plan was approved to reacquire 10.5 million shares at a cost of 810 rupees per share – 50% greater than the closing price of Paytm shares on the day of the board’s decision.
Shekhar Sharma said that the share buyback decision was made to breathe confidence into the company from an external perspective. Shekhar Sharma said the firm was “confident to generate healthy revenues and cash flows” with ambitions to reinvest in “sales, marketing and technology”.
Shekhar Sharma: Plenty of reasons for Paytm to be positive
Global financial services giant Morgan Stanley has reviewed Paytm’s plans and stated that the buyback looks unlikely to stunt its growth prospects. That’s because it estimates Paytm building excess cash once factoring in the investments needed for growing the company. In addition, Morgan Stanley anticipates cash flow tailwinds based on improved EBITDA.
Shekhar Sharma acknowledged that the operator’s cash burn may have had a bearing in the investor unease surrounding Paytm stock in recent months.
However, he confirmed that there would be no more cash burn required within the business. Shekhar Sharma reiterated that the firm was “far ahead of [its] ambitions”, with the company stating last month that the business would be free cash flow positive sometime in the next 18 months.
Institutional brokerage CLSA also forecasts Paytm’s cash burn to cease in the next 18 months, with the broker subsequently uprating the Paytm stock. Paytm’s latest Q3 2022 earnings update revealed that its net cash, cash equivalents, and investable balance totaled ₹9,182 crore.
As a concept, Paytm has certainly been warmly embraced by consumers throughout India. In its Q4 FY 22 figures, Paytm stated its average monthly transacting users totaled 70.9 million. This represented a 41% year-on-year rise.
Its use cases appear to be growing year-on-year too, cementing itself as one of the leading payment methods in India’s iGaming industry. Paytm wallets make it easy to move funds secure to iGaming sites to claim casino bonus promotions without having to directly link their bank accounts to their casino accounts.
Offshore iGaming brands are increasingly offering their services to Indian players and agile payment methods like Paytm make cross-border transactions entirely frictionless.
When it comes to online merchant payments, Paytm also appears to have this sector locked down. Despite the rise of competitors like Walmart’s PhonePe and Google Pay, Paytm stated that it has a majority market share of more than 50% in the merchant payments segment.
Paytm is about much more than e-commerce transactions though, with its commitment to wealth management and digital banking. Its very own Mini App Store is also home to open-source technologies and fintech solutions, as well as business apps that can work with Paytm accounts to scale their operations.
Paytm's share buyback strategy appears to have renewed confidence in the company, but it will need to work hard to stay on top of the online merchant payments sector considering the competition in this area.