Shares of One 97 Communications, the parent company of Paytm, dipped 7 per cent on the BSE in Tuesday’s intra-day trade on profit booking after the fintech company narrowed its losses to Rs 208.3 crore in the third quarter of financial year 2025 (Q3FY25), down from Rs 219.8 crore in Q3FY24. The stock has corrected 22 per cent from its 52-week high level of Rs 1,063, touched on December 17, 2024.
In the past six months, the stock price of Paytm had zoomed 161 per cent, as compared to the 5 per cent decline in the BSE Sensex. It had bounced back 243 per cent from its all-time low of Rs 310, hit on May 9, 2024.
Paytm’s Q3 loss follows a profitable September quarter (Q2FY25), when the company reported a profit of Rs 928.3 crore, driven by the sale of its movie and ticketing business to Zomato.
The company narrowed its losses during the recently concluded quarter mainly due to better lending revenue (even adjusted for the higher Default Loss Guarantee (DLG) cost)) and continued cost optimisation measures. This, coupled with higher treasury income on proceeds from sale of the entertainment business and stake in PayPay Corp (with lower depreciation and ESOP cost), led to a lower net loss during the quarter.
The company’s revenue declined 35.9 per cent to Rs 1,827.8 crore in the quarter from Rs 2,850.5 crore in the corresponding quarter last year. Sequentially, revenue rose 10.1 per cent from Rs 1,659.5 crore in Q2FY25, due to an increase in Gross Merchandise Value (GMV), healthy growth in subscription revenues and an increase in revenues from distribution of financial services. Growth in net payment margin was largely on account of higher subscription revenue, the company said.
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The company's management expects contribution margins to remain healthy, led by cost control and steady growth in its merchant financial business.
Paytm continues to witness an improvement in its business metrics. Disbursements have started to recover and are off the lows of the first quarter (Q1FY25). GMV improves at a steady rate. Most of the business metrics continue to improve. Motilal Oswal Financial Services (MOFSL) expects that steady business recovery should lead to a 29 per cent revenue compound annual growth rate (CAGR) over FY25-27E.
“We estimate a 29 per cent CAGR in disbursements over FY25-27E, while the take rates should be healthy as the company now forays into DLG arrangements. Payment processing margins are expected to moderate to 5-6bp vs. the historical rate of 7-9bp, primarily due to the discontinuation of more profitable products,” MOFSL said in the company's results update. The brokerage firm retains its ‘neutral’ rating on the stock.
With the merchant payment/lending business going strong, an improving Monthly Transacting User (MTU) will create a strong funnel for the financial/marketing service business/revenue that, along with better treasury income/continued cost optimisation, should put Paytm on an early path to profitability in FY26E, according to analysts at Emkay Global Financial Services.
The brokerage firm recently upgraded Paytm to 'Buy' from 'Add' with DCF-based target price of Rs 1,050, implying FY27E EV/Op Rev at 3.4x and P/BV at 3.6x, mainly due to improving visibility on business turnaround and thus on an early path to profitability. Payments aggregator license from RBI, once received, could further reduce the regulatory drag and act as a stock catalyst, analysts said in the company's results update.
Going forward, analysts at JM Financial Institutional Securities expect the impact of DLG cost to normalise with CM reverting back towards 55 per cent (excluding UPI (Unified Payments Interface) incentives) and the company reporting PAT profitability next quarter, thanks to UPI incentives worth Rs 350 crore, the brokerage firm said.