One 97 Communications, the parent company of Paytm, has experienced a significant rise in its share price in the current year so far. The stock's value soared from ₹531 apiece to ₹825, delivering a return of 55.36%. This impressive rally stands in stark contrast to its performance in CY22, when it faced a significant decline, losing nearly 60.21% of its value.
Looking ahead, the positive momentum in Paytm's stock price is expected to continue, as indicated by the domestic brokerage firm Motilal Oswal. The brokerage continued with its bullish outlook on the stock following Paytm's Q1FY24 performance.
For the June-ending quarter, the company showcased an improvement in its financial performance, with losses narrowing to ₹358.4 crore compared to a net loss of ₹645.4 crore in the same period last year. However, sequentially, the losses were higher than in the preceding March quarter, which stood at ₹168 crore.
The drop in net profit was primarily attributed to the increase in indirect expenses, which rose to ₹1,220 crore, reflecting a YoY increase of 22%. Nonetheless, there was a positive trend in terms of indirect expenses as a percentage of revenues, which declined to 52% from 60% in Q1 FY2023.
The rise in indirect expenses was on the company's expected lines due to higher employee costs due to annual appraisals, expansion of sales and technology teams, and higher investment in marketing during IPL.
The consolidated revenue from operations during the quarter rose by 39% YoY to ₹2,342 crore. The company's payment business continues to scale, led by an increase in GMV and higher subscription revenue. In Q1FY24, payments revenue grew by 31% YoY to ₹1,414 Crore.
In Q1 GMV grew 37% YoY to ₹4.05 Lakh crore. Despite no UPI incentives received during the quarter, payment processing margin was at the high end of the guided 7-9bps range (of GMV), the company said. As of June 2023, merchant paying subscription for devices had reached 79 Lakh, an increase of 41 Lakh YoY and 11 Lakh QoQ.
“We see sustained traction and earn ₹100 to ₹500 per month per device. We believe India has the potential to have 10 crore merchants accepting mobile payments. Considering this large scale of opportunity and our ability to monetise them, we continue to invest in expanding our merchant acquiring sales teams, with an addition of nearly 10,000 members over last year”, the company said in its earnings report.
Financial services and other segments
The revenue from financial services and other segments witnessed impressive growth, surging by 93% YoY to reach ₹522 crore in Q1. The company's distributed loans through its platform grew by 51% YoY to ₹1.28 crore. The value of loans distributed grew to ₹14,845 crore, a growth of 167% YoY.
The total number of unique borrowers who have taken a loan through its platform has increased by 49 Lakh over the last one year to 1.06 crore.
Commerce and cloud segment
Under this segment, the company monetize Paytm app traffic by providing marketing services to its merchants. This segment witnessed revenue growth of 22% to ₹405 crore.
The GMV from its commerce business, including travel, movie, entertainment ticketing, deals, and gift vouchers, grew by 10% YoY to ₹2,537 crore, while the revenue grew by 12% YoY to ₹156 crore.
The company said growth was subdued during Q1 FY24 due to a decline in the movie industry and a decline in the Play Store voucher industry.
The cloud business, which includes advertising, co-branded credit cards, marketing cloud, and loyalty services, experienced a significant 29% YoY growth and generated ₹249 crore in revenue, driven by growth in the credit card distribution and advertising business.
As of June 2023, the company had 7.5 Lakh activated credit cards, an increase of 1.6 Lakh cards in the quarter.
Outlook and Valuation
Motilal Oswal said “Paytm reported a largely in-line 1QFY24 with sustained momentum in GMV and robust growth in disbursements. This, coupled with strong traction in subscription devices, led to healthy growth in total revenue.”
Gradual improvements in operating leverage boosted the contribution margin to 56%. Adjusted EBITDA came in below the brokerage estimates; however, the brokerage said that the company remains on track to achieve EBITDA breakeven by FY25.
Motilal believes that consistent improvement in contribution margin and operating leverage will continue to drive operating profitability.
It continued with its ‘buy’ rating on Paytm stock with a target price of ₹1,000 apiece. This reflects an upside potential of 21.21% from the stock's current trading price.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
