Paytm Q2 results preview: Revenue uptick likely on steady lending, payments; losses to shrink, GMV may increase

Paytm is expected to post healthy sequential growth in revenue for Q2 FY24, driven by steady loan disbursements and new device additions. Paytm's operating profitability is seen increasing in the July-September quarter on account of improvement in contribution and operating leverage. The digital payments platform is slated to announce its Q2 results on October 20, 2023.

Contribution margin is the money left over from sales after paying all variable expenses while operating leverage shows how a company’s revenue growth translates into growth in its operating income. Brokerages expect Paytm's Gross Merchandise Value (GMV) growth to accelerate on a sequential basis on the back of higher market share.

Revenue uptick seen in Q2

Paytm's revenue for the September quarter is likely to come in at around Rs 2,590 crore, up 10.6 percent sequentially. On a year-on-year (YoY) basis, revenue may jump 35 percent from Rs 1,914 crore reported in the same quarter last fiscal, according to an average estimate of three brokerages. Continued momentum in lending and payments will drive revenue growth. However, lower commerce and cloud revenues may be a concern.

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Losses to narrow, GMV to accelerate

Paytm's losses are expected to narrow further in the quarter under review. The company is likely to report losses at Rs 254 crore, down 29 percent sequentially. On a YoY basis, losses may reduce by 55 percent from Rs 571 crore reported in the same quarter in FY23.

Goldman Sachs analysts see an upside to Paytm earnings and multiples both, as they expect continued momentum in lending and payments, with strong operating leverage in the business model. The international brokerage forecasts Paytm’s GMV to accelerate 40 percent YoY to Rs 4.5 lakh crore in Q2 FY24, implying a 24 percent share of India’s digital payments. GMV reflects total payments made to merchants on the platform

It sees Paytm's loan disbursals growth at 129 percent YoY to Rs 16,700 crore in the quarter. "We forecast Paytm to be one of the fastest growing companies within our India Internet coverage. We raise our FY24-26E revenue estimates by up to 3 percent, driven by higher GMV, partially offset by lower commerce and cloud revenue," it said in a report.

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Paytm poised for EBITDA, net income profitability in FY25

Goldman Sachs analysts forecast continued improvement in profitability, with adjusted EBITDA margins reaching double-digits by early CY24. It also expects FY25 to be the first full year of reported EBITDA and net income profitability for Paytm. "We expect Paytm to have the highest EBITDA in our India Internet coverage starting FY25E," the brokerage house said.

Meanwhile, Yes Securities forecast Paytm's payment processing charges (PPC) as a proportion of payments revenue to be at 54.5 percent, a metric that was 54.9 percent in the first quarter of FY24. "We arrive at a total expenses (ex PPC) growth of 7 percent QoQ, compared with a growth of 11 percent in 1QFY24, resulting in an EBITDA margin (ex other income and after ESOP cost) of -6.6 percent, an improvement of 591 basis points QoQ,” the brokerage said.

Motilal Oswal expects the number of subscription payment devices to show strong traction. EBITDA before ESOP costs is expected to come in at Rs 175 crore, it said in a report.

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Lending business to stay on its growth trajectory

According to Bernstein analysts, while it's too early to declare winners in the digital lending space, Paytm does appear to be on the right side of disruption with its dominant payments platform and a head start in digital credit products. According to foreign brokerage, Paytm has leveraged its large Monthly Transacting User (MTU) base to gain a head start in the digital lending segment.

Besides, the Vijay Shekhar Sharma-led firm has added more lending customers than the number of credit card additions by the top 4 private sector banks combined. Paytm's underwriting and collection outcomes are impressive too, Bernstein said. "We expect Paytm to continue its strong growth in the lending business. Simultaneously, a rise in payments volume will ensure that the business turns profitable in FY25E," the brokerage added.

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