One 97 Communications Limited (Paytm) has initiated a corporate restructuring move, seeking shareholder approval to transfer its Offline Merchants Payment Business to its wholly-owned subsidiary, Paytm Payments Services Limited (PPSL). This decision aims to streamline the company's payment services operations in response to regulatory requirements.

Key Details of the Proposed Transfer

• Business Segment: The transfer involves Paytm's offline merchants serviced through QR, Soundbox, and EDC machine payments.
• Transfer Method: The business will be transferred as a going concern on a slump sale basis.
• Consideration: The transfer will be at book value, approximately INR 960.00 crores.
• Effective Date: To be determined in the business transfer agreement.

Rationale Behind the Move

1. Regulatory Compliance: The transfer aligns with the Reserve Bank of India's (RBI) Master Directions on Regulation of Payment Aggregators.
2. Business Consolidation: The move aims to consolidate online and offline merchant payment businesses within one regulated entity.
3. Operational Efficiency: It seeks to build efficiency and synergy within the Paytm group.

Financial Implications

• The transferred business generated approximately 47% of Paytm's total revenue.
• The transfer is not expected to impact the economic interests of Paytm's shareholders.
• Paytm's consolidated financial position and results are expected to remain unaffected.

Shareholder Approval Process

• Paytm is conducting a postal ballot for shareholder approval.
• The e-voting period has been announced.
• Results will be announced after the voting period concludes.

Regulatory Context

PPSL received in-principle approval from the RBI to operate the Online Merchants Payment Business under the Payment and Settlement Systems Act, 2007. This transfer is expected to bring both online and offline payment services under a single regulated entity.

Management's Perspective

The Board of Directors, based on the Audit Committee's recommendations, views this transfer as being in the best interest of the company and its stakeholders. They emphasize that the move is expected to enhance regulatory compliance and operational efficiency without affecting the company's overall financial position.

This strategic restructuring represents a significant step towards aligning One 97 Communications' business model with regulatory requirements while potentially enhancing its operational capabilities in the digital payments market.

One 97 Communications Ltd. , the parent company of Paytm, has witnessed a significant shift in its shareholding pattern, with retail investors continuing to exit while mutual funds increase their stakes.

Retail Shareholders on the Decline

For the sixth consecutive quarter, Paytm has seen a decrease in its retail shareholder base:

This consistent decline suggests a changing sentiment among individual investors towards the fintech giant.

Mutual Funds Ramp Up Holdings

In contrast to the retail exodus, domestic mutual funds have shown increased confidence in Paytm:

Key mutual fund investors include:

1. Motilal Oswal Midcap Fund (5.57%)
2. Nippon India Growth Midcap Fund (2.11%)
3. Mirae Asset Largecap Fund (1.66%)

Founder's Stake and Stock Performance

• Vijay Shekhar Sharma, Paytm's founder, maintains a 9.07% stake in the company.
• Paytm shares have shown strong performance:
  • July-September: 22% gain
  • April-June: 18% gain
• The stock closed at ₹1,306.80

Analyst Outlook

Axis Capital has upgraded Paytm's stock, setting a target price of ₹1,500.00. This upgrade, coupled with the increased mutual fund interest, may signal growing institutional confidence in Paytm's business model and future prospects.

The contrasting movements between retail and institutional investors highlight the complex dynamics at play in One 97 Communications' shareholding structure. While retail investors appear to be booking profits or losing confidence, mutual funds are seeing value in the fintech leader's long-term potential. As the Indian digital payments landscape continues to evolve, Paytm's ability to maintain its market position and deliver on growth expectations will be crucial in shaping investor sentiment going forward.