Newsletter content 2 Dec'21

Paytm’s losses widened by 8% to ₹474 crore in the July-September quarter. But the stock gained when the market opened for trade on Monday. Bonkers, right?

There were more people buying the stock around ₹1,780 a piece when there are at least two broking firms ⁠— Macquarie and JM Financial ⁠— which expect the stock to go down to near ₹1,200 any time in the next 12 months. There must have been something good in those numbers.

Here’s what we found

The lending business has shown an eight times growth in number of loans, and a six times jump in the amount disbursed, in the three months to September. The average loan size has come down from a little over ₹6,000 to ₹4,435.

But the stock was already rising ⁠— up over 9% since the debacle on the listing day. That means there was more to it than just the earnings.

The thing is the Reserve Bank of India released a report last week from a working group that wants to tighten “illegal” lending that happens through online apps. Apparently, there are over 1,100 apps that give loans and over 600 of them are illegal. If you have taken such loans, you may want to check if they are ‘legal’.

If these get weeded out, those borrowing from the illegal apps may move on to companies like Paytm, Simpl or Postpe or any other credible player. That’s more business for these guys.

But how will they clean it up? Here’s an explainer.

Lending is likely to be the money spinner for Vijay Shekhar Sharma and Paytm. But it’s still gonna take a long time.

Paytm has a lot of products but it’s not a market leader in any of them. Analysts say that it could be March 2027 before the earnings break even. That’s if one were not to consider interest on its own loans, tax paid to the government, depreciation and amortisation. Banker bros call it EBITDA.

Why so long, you may ask? Here’s a 2-minute explanation.