 "Did Zomato pull a 'Blinkit' with Paytm's ticketing biz buy? Analysts weigh")
Zomato-Paytm entertainment, ticketing business deal: Food aggregator Zomato has laid the foundation for its third vertical of growth -- Going-out business -- with the Board's approval to acquire Paytm's entertainment and ticketing business, analysts said on Thursday.
While the move will solidify 'going-out' offering, the acquisition may take time to reap results for Zomato, they cautioned.
"Paytm's entertainment and ticketing arm will be part of Zomato's 'District' app, which is due to be launched in the coming weeks. On a sum-of-the-part (SOTP) basis, 'District' would hardly move the needle as of now. However, Zomato’s vision of creating strong brands across food delivery, grocery, and going-out could make it a formidable platform in the long-term," said analysts at Motilal Oswal Financial Services.
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On the bourses, Zomato share price rose 2.7 per cent to Rs 267 in the intraday trade. It, however, erased gains to end 0.8 per cent lower at Rs 257.8 per share. On the other hand, Paytm share price hit an over six-month high of Rs 604.45, rising 5 per cent in the intraday trade, before closing 3.3 percent lower at Rs 554.
By comparison, the BSE Sensex settled 148 points higher at 81,053 level.
Zomato-Paytm deal
On Wednesday, Zomato's Board approved to acquire Paytm's entertainment and ticketing business (for movies, sports and events) in an all-cash deal worth Rs 2,048 crore. The deal implies a valuation of around 1x FY24 EV/GOV.
At the end of the financial year 2023-24 (FY24), gross order value (GOV) of the arm was around Rs 2,000 crore (up 29 per cent year-on-year) and had 78 million ticket purchase transactions by over 10 million customers. Revenue of the business was Rs 197 crore with adjusted Ebitda of Rs 29 crore.
Compared to this, Zomato's 'Going-out' segment reported annualised GOV of around Rs 5,070 crore in Q1FY25 with 0.8 per cent adjusted Ebitda margin as a per cent of GOV. The acquisition of Paytm's entertainment business will, thus, analysts believe, bolster Zomato's 'Going-out' business.
They added that while Paytm's current business is at an adjusted Ebitda of 1.5 per cent of GOV, higher commissions for exclusive events and cost optimisation could take this higher in the medium term.
Meanwhile, Boards of the two companies have decided that the ticketing business will continue to run on the Paytm app for a period of up to 12 months to ensure a smooth transition. The deal is expected to be closed in Q2FY25.
According to analysts at Nomura, smooth integration of the acquired businesses into the new District app could be challenging for Zomato.
"Unlike Blinkit acquisition, where the founder Albinder Dhindsa and his team were well known to Zomato management, here the acquired team is completely unknown. Secondly, there could be an initial cash burn to incentivise the users to migrate from Paytm's app to Zomato and District app," they explained.
Nomura has maintained its 'Buy' rating on the stock with an unchanged target price of Rs 280 as it believes the key drivers for Zomato's share price will remain the sustained momentum in Quick commerce business in the near-term and Food Delivery business in the medium term.
Long-term strategic fit
Once executed, Zomato would become the second largest entertainment ticketing platform in the country, behind only 'Bookmyshow'.
Zomato's management expects the 'Going-out' segment to break-even in the near term as the company will likely focus on growing GOV to over Rs 10,000 crore by FY26 (3x FY24). Over the medium to long term, the management expects adjusted Ebitda margin to expand to 4-5 per cent (as per cent of GOV).
"The management's strong demonstrated execution in the past (with Blinkit) and absence of meaningful organised competition (barring Bookmyshow) makes us believe 'Going-out' could be the next big success out of Zomato in the long-run," said JM FInancial.
It has raised the stock's target price to Rs 300 (from Rs 260 earlier), with a 'Buy' rating, to factor-in the deal's impact.
"Like Zomato's food delivery segment, the ticketing business has low capital intensity, which promises a high return ratio once it reaches a steady state," said those at Jefferies with a higher target price of Rs 335 and a 'Buy' rating.