Paytm Q1 preview: Profit test for the turnaround stock of the year

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One97 Communications, better known as Paytm, its digital payments platform, is set to announce its results for the April–June quarter (Q1FY26) on July 22. After narrowing losses steadily over the past few quarters, analysts expect the company to post a marginal profit net of tax, driven by greater traction in merchant lending, a growing subscriber base and cost optimisation.

Q4 recap: Losses narrow, lending stabilises

In Q4FY25, Paytm reported a narrowing of its adjusted earnings before interest, taxes, depreciation and amortisation or EBITDA loss to Rs 54 crore with contribution margin stable at 56.1 percent. The company’s gross merchandise value or GMV—a performance indicator that tracks sales—stood at Rs 5.1 lakh crore, up 19 percent over the same quarter in the previous year, and its merchant base reached 44 million.

Average monthly transacting users had fallen from 96 million in Q4FY24 to 72 million.

Lending momentum remained firm, with merchant loans driving volumes even as personal loan growth lagged amid regulatory tightening. Total loan disbursals stood at Rs 15,181 crore during the quarter, up 3 percent QoQ and 48 percent YoY, with merchant loans forming the majority.

The net loss the company reported in that quarter included a one-time charge of Rs 522 crore related to employee stock options. Its share of the UPI or Unified Payments Interface stabilised at 6.9 percent by volume and 5.5 percent by value, according to analysts at brokerage Motilal Oswal.

Paytm Q4 results: Close to break even; reports Rs 540 crore net loss after a one-time cost of Rs 522 crore

Q1 estimates: Net profit likely, but topline flat

JM Financial expects Paytm to report revenue of Rs 1,910 crore in Q1, flat compared to last quarter but up 27 percent year-on-year. Adjusted EBITDA is estimated at Rs 21 crore, with a margin of 1.1 percent.

The brokerage forecasts a net profit of Rs 18.9 crore, which would mark Paytm’s first-ever quarterly profit.

Contribution margin may decline slightly due to higher share of lending in the mix, but operating leverage from lower employee costs should support profitability.

“On a consolidated basis, revenue (ex-UPI incentive) is expected to grow around 8 percent QoQ. Contribution margin is expected to improve 80bps QoQ (ex-UPI incentive impact in Q4FY25). Despite the impact of wage hikes, improved operating leverage will result in adjusted EBITDA of Rs 211 million. We expect the company to turn PAT positive with a PAT of 189 million (Rs 18.9 crore), as treasury income is likely to compensate for the impact of ESOP expense and D&A expense,” JM Financial noted.

Motilal Oswal shares a similar view, estimating Q1FY26 revenue at Rs 1,896 crore, up 26 percent YoY and broadly flat QoQ. The firm expects GMV to rise 3 percent sequentially to Rs 5.3 lakh crore, while contribution profit may moderate to Rs 1,050 crore due to the absence of UPI incentives seen in Q4.

However, it forecasts a higher contribution margin of 55.6 percent, and expects the company to post a marginal profit.

Bernstein stated that while Paytm may post a profit this quarter, it will need to “deliver consistent profitability for at least 2–3 quarters” to meaningfully rebuild investor confidence.

Lending, devices continue to drive growth

Merchant lending is expected to rise 8 percent sequentially in Q1, according to JM Financial, mainly driven by merchant loans with significantly lower mix of Default Loss Guarantee (DLG). The company’s subscriber base is projected to grow 7 percent QoQ to 13.3 million, driven by new merchant additions and reactivations. Device deployment, a key metric in Paytm’s monetisation strategy, stood at 12.4 million in Q4, up 16 percent year-on-year, as per Motilal Oswal.

While merchant loans account for most of the growth, personal loan disbursals remain subdued due to tighter unsecured credit norms.

“Revenue from financial services is expected to remain flattish sequentially due to lower take rates on account of decline in FLDG-based loans,” JM Financial added. FLDG or first loss default guarantee loans are those where the fintech and not the lender it has tied up with takes the first hit from a non-repayment.

Bernstein noted that margin expansion is likely to come from deeper penetration of merchant lending and continued growth in subscription-led device revenues. It added that any improvement in revenue visibility from wallet usage or regulatory easing at Paytm Payments Bank could act as catalysts.

Stock recovery and shareholding pattern

Paytm shares have staged a sharp rebound from Rs 310 in May to over Rs 1,000 by July 2025, driven by improving fundamentals and expectations of inclusion in the MSCI Standard Index. Motilal Oswal estimates potential inflows of $212 million if the stock is upgraded in the August MSCI rebalance.

The MSCI announcement is expected on August 8, and the changes will take effect from August 26.

The brokerage maintains a ‘Neutral’ rating with a target price of Rs 1,000, while Jefferies has an ‘Outperform’ rating with a target of Rs 1,100.

The Q1FY26 shareholding data shows domestic mutual funds increased their stake to 13.86 percent (from 13.11 percent in Q4FY25), while FII holdings fell slightly to 54.9 percent from 55.4 percent. Notable institutional investors include Mirae Asset, Nippon India, Bandhan Mutual Fund, and Motilal Oswal AMC.

UPI incentives dropped sharply from Rs 290 crore in FY24 to Rs 70 crore recently, as per Motilal Oswal, limiting earnings support from this channel. The government’s decision to not allow MDR (merchant discount rate) on UPI further curbs monetisation options for the payments business.

Bernstein flagged this as a key risk, noting that lower UPI subsidies and lack of MDR make the payments segment’s revenue outlook more uncertain. However, it added that regulatory clarity on payment aggregator licensing and any easing of curbs on the Payments Bank would be key near-term triggers.

JM Financial also flagged regulatory clarity and customer growth as key monitorables this quarter.