India’s largest financial technology startup, One 97 Communications, which operates under the brand name Paytm, struck the right chord when it released its June quarter earnings on August 5.
The crash in global technology stocks in 2022 has put a laser-sharp lens on what startups are doing to achieve profitability and Paytm appeared to deliver the message that it is conscious of that demand.
And the investors seem to be cheering the numbers as Paytm touched Rs 834.10 at noon, its highest level since February 18. At 3 pm, the share was trading at Rs 828.75 on the National Stock Exchange, up 5.67 percent from the previous close.
The company reported better-than-expected numbers on almost all fronts led by a growing share of financial services in its overall business mix, which is now up to 16 percent from nearly 12 percent in the previous quarter.
The company narrowed its consolidated net loss to Rs 644 crore from Rs 762.5 crore in the January-March period. The company’s operating loss before accounting for employee stock options (ESOPs) cost came in at Rs 270 crore, much better than brokerage firm JM Financial Services’ estimate of Rs 370 crore.
Also Read: Paytm vs PhonePe: Merchant sound device may be at heart of feud
Paytm’s management impressed analysts with its talk of enhanced focus on cost optimisation, as reflected in lower payment processing charges and focus on profitability.
Paytm reiterated that it remains on track to break even before accounting for ESOP costs by the September quarter of the next financial year.
As reported by Moneycontrol, Paytm's ESOP expenses of the so-called key managerial personnel, including CEO and managing director Vijay Shekhar Sharma and CFO Madhur Deora, surged 50 times to Rs 567 crore in FY22, up from Rs 11.2 crore in the previous financial year.
Investors are buying into the company’s sense of renewed purpose, with the stock surging over 5 percent to Rs 825.3 in the morning trade on the National Stock Exchange. Paytm’s shares have now rallied over 62 percent after hitting their record low on May 12.
Follow our live blog for the latest market updates
Analysts still not convinced
Suggesting that the digital payments firm will now be more oriented towards growth with profitability instead growth at any cost is one thing, executing another. And, analysts on Dalal Street are sceptical.
“Path to sustained improvement is likely to come at slower growth and we continue to see downside risks to current take rates on financial services distribution business,” brokerage firm JM Financial said in a note.
It believes that Paytm's path to profitability hinges squarely on reducing indirect costs—indirect expenses are still high at 59 percent of sales—and lowering the cost of ESOPs.
“We believe incremental reduction on payment processing charges is difficult and scale up financial services business remains the key driver for sustainable profitability where we see risks to the current take rates,” JM Financial said.
The sustainability of the current take rates in the financial services business is something that bothers analysts at Macquarie Capital as well, as the brokerage firm expressed doubts about the metric.
“Going ahead, the overall take rate may go down. The company focuses on net payment margin GMV (gross merchandise value) and that is how the company runs this business,” Paytm told analysts in a post-earnings call.
Brokerage firm ICICI Securities, which has a "buy" rating on the stock, too, remains sceptical of Paytm’s promise of profitability in the next five quarters. “We remain conservative and expect the company to be adjusted EBITDA-positive by 2024-25,” ICICI Securities said in a note. Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
