In the second quarter, Paytm (operating as One 97 Communications Ltd) recorded its first-ever net profit of 9.3 billion rupees, thanks largely to a 13.5 billion rupee profit from the sale of its events business. Paytm’s extraordinary sales performance, at nearly a fifth of all Indian digital payments in June, has been a major reason for its financial upturn. Yet, the events business was deeper in the red than analysts expected, and sales actually fell 34 per cent to 16.6 billion rupees on an annual basis. Still, the bottom line – especially news that analysts expected a nearly 10 billion rupee loss for the quarter – was monumental. Paytm’s quarterly performance comes amid ongoing regulatory challenges, including new rules by the Reserve Bank of India preventing banks from working with third-party payment platforms, a rule that hurt operations and caused the stock price to plummet.
Regulatory scrutiny over this business has been intense – especially on the payments and banking subsidiary – and disruptions to its business have been significant, causing it to team up with other Indian banks as a form of strategic hedge. Paytm has also scaled back its ambitions to focus on its core payments and financial services business. It’s sold off its non-core verticals to other players – its movie and event ticketing business for $244 million to Zomato Ltd, for example – as part of revamp to generate revenue from a larger merchant base and the distribution of new financial products.
In what is both a testament to Paytm’s considerable market reach and resilience, and a clear sign that even the most powerful company in an emerging sector can get whipsawed in the fickle markets that China faces, Paytm’s shares have bounced back since plunging more than 50 per cent just before the lunar new year as authorities inflicted a series of regulatory penalties. The bounce-back is a confirmation of Paytm’s long-term prospects and an indication of strategically prudent positioning, such as its recent federal approval that improves its position in digital payments. Amid ongoing changes to the digital marketplace – including shrewd manoeuvring by regulators – Paytm is remaking itself in an attempt to regain and even improve on its positioning in India’s fierce and highly competitive digital payments sector.
Source: The Times of India
