One97 Communications: Markets unhappy after Q3, but brokerages positive

One97 Communications, which provides digital payments and financial services under Paytm brand, reported revenue of Rs 1,830 crore in the October-December quarter of financial year 2025 (Q3FY25), up 10 per cent quarter-on-quarter (Q-o-Q), driven by sustained rise in Payments Gross Merchandise Value or GMV (up 13 per cent Q-o-Q) along with growth in financial services driven by higher take-rates in merchant loan disbursals (up 16 per cent Q-o-Q).

 

The take-rate in financial services improved 188bps Q-o-Q due to 80 per cent of merchant loan disbursals (approximately Rs 3,100 crore) shifting to FLDG (First Loss Default Guarantee), a higher mix of merchanta loans, and collection efficiencies.

 

Personal loans dipped 12 per cent Q-o-Q while merchant loans rose 16 per cent Q-o-Q. Marketing services revenue declined 12 per cent sequentially (it was flat excluding Events Ticketing business). With front-ended DLG cost being reflected under Other Direct expenses, the company reported a 130bps sequential dip in Contribution Margin (CM).

 

However, tight control on indirect expenses ensured adjusted EBITDA loss of Rs 40.5 crore, an improvement of Rs 150 crore Q-o-Q. Going forward, if DLG cost normalises with CM reverting back towards 55 per cent (excluding UPI incentives), the company may turn a net profit due to UPI incentives of Rs 350 crore.

 

The payment services revenue stood at Rs 1,060 crore in Q3FY25, up 7.8 per cent Q-o-Q due to GMV growth of 12.8 per cent Q-o-Q and 4.5 per cent Q-o-Q increase in merchant subscriptions with subscriber base up to 11.7 million vs. 11.2 million in Q2.

 

The MTU (monthly transacting user) base has increased to 72 million in Dec’24 from 68 million in Sept’24 as Paytm started onboarding new UPI customers only after NPCI granted the approval in Oct’24.

 

Net payment processing margin (ex-UPI incentives) however declined marginally to 4.24bps from 4.62bps in Q2FY25. Net payment processing margins including UPI incentives may stabilise at 6bps+ in FY25. 

 

In Q3FY25, value of loans disbursed increased to Rs 5,570 crore (vs. Rs 5,280 crore in Q2FY25, up 5.6 per cent Q-o-Q). Revenue from Financial services increased to Rs 500 crore (vs. Rs 380 crore in Q2FY25, up 33.5 per cent Q-o-Q).

 

Revenue from marketing services (includes advertising, ticketing, credit card distribution, deals & gift vouchers) stood at Rs 270 crore, flattish Q-o-Q ex-entertainment ticketing, which was sold to Zomato in Aug’24. Credit card distribution is slower due to the cautious stance of issuers.

 

In Q3FY25, contribution margin declined 130bps Q-o-Q to 52.4 per cent. This is due to higher DLG cost reported under other direct expenses which doubled Q-o-Q. DLG limits are being hiked and this is an increasingly popular option.

 

But lower marketing and employee cost led to improvement in Adjusted EBITDA margin, which stood at -2.2 per cent in Q3FY25 vs. -11.3 per cent in Q2FY25. Adjust PAT loss has also come down to Rs 210 crore from Rs 420 crore in Q2FY25. Paytm intends to expand its distribution network in Tier 2+ cities and marketing cost will rise sharply. But non-sales employee costs might dip with improvement in productivity due to Artificial Intelligence (AI).

 

A net profit in Q4FY25 may be followed by full year profitability in FY26. However, the DLG model carries a potential concentration risk with currently just one lender driving the model.

 

Paytm is expanding internationally with strategic plans for the UAE, KSA, and Singapore. It has established wholly owned subsidiaries to operate in these regions. It aims to invest Rs 20 crore in each market to launch merchant payment and financial services products. As per management, during the initial phase, focus will be on the merchant side. Given $280 million from PayPay stake sale held in the Singapore entity, that pool may be directly used internationally.

 

Prospects look better due to visibility on business turnaround and profitability. As and when, the Payment aggregator license is received from RBI, that could be a valuation catalyst.

 

Paytm’s stock fell 5 per cent on Tuesday and closed at Rs 853.20 on the BSE. According to Bloomberg, 8 of the 13 analysts polled post results are bullish, while two are bearish and three are neutral. Their average one-year target price is Rs 980.