Jefferies has upgraded its target price for Zomato to Rs 335 per share, following the company’s acquisition of Paytm’s entertainment ticketing business. Jefferies has a Buy rating on Zomato stock. This move comes after months of speculation and is seen as a strategic extension of Zomato’s “going out” segment, establishing a third clear growth vector for the food delivery giant, said Jefferies.
The acquisition is expected to bolster Zomato’s position in the market, providing a new revenue stream in the form of entertainment ticketing, said the brokerage. Unlike its previous foray into the grocery sector with Blinkit, which faced high capital intensity, the entertainment ticketing business promises a lower capital intensity and a higher return ratio in the steady state, akin to Zomato’s core food delivery operations, according to Jefferies.
The strategic question now is whether Zomato can replicate its success in the highly competitive entertainment sector, where it will be up against established leader BookMyShow.
On August 21, Paytm announced to sell its entertainment ticketing business to Zomato for ₹2,048 crore in cash. This transaction allows Paytm to concentrate more on its core operations in payments and financial services, which have become increasingly crucial amid recent challenges faced by the fintech giant.
As of Q1, Zomato has a substantial cash reserve of ₹12,539 crore, which will facilitate this acquisition without straining its financials. The sale marks a pivotal moment for Paytm as it realigns its business strategy to enhance shareholder value and focus on its core financial services.
The entertainment ticketing segment, which includes movie, sports, and live event tickets, reported ₹297 crore in revenue and ₹29 crore in adjusted EBITDA for the fiscal year 2024. Paytm’s parent company, One97 Communications Limited, emphasized that this deal reflects the value created through its ticketing ventures and reinforces its commitment to improving shareholder value.
The deal involves the transfer of ownership of Paytm’s entertainment ticketing business, including the platforms TicketNew and Insider, to Zomato’s subsidiaries. Approximately 280 employees from the ticketing division will also join Zomato as part of the agreement. The transaction is structured on a cash-free, debt-free basis, with the final value subject to adjustments based on cash and net working capital at the closing.
This acquisition signals a new chapter for both companies, with Zomato expanding its horizons and Paytm sharpening its focus on its core financial operations.
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