Paytm shares fell over 2 percent on July 22 after the fintech reported a weak result for the quarter ended June 2024 (Q1FY25). One 97 Communications, which runs Paytm, reported that its net loss widened two-and half times on-year to Rs 839 crore.
The Vijay Shekhar Sharma-led fintech firm's revenue from operations declined 36 percent on-year to Rs 1,502 crore in Q1FY25 as the company continues to cope with the impact of RBI curbs shutting the payments bank business.
The Reserve Bank of India (RBI) had placed crippling restrictions on the firm’s associated entity Paytm Payments Bank Limited (PPBL) in January this year. Previously, Paytm had written off Rs 227.1 crore worth of investment in PPBL and accounted for it as impairment losses.
According to Emkay Global, a meaningful revival in Paytm's lending business seems a far call, given continued partner/regulatory concerns, which coupled with disrupted low MDR UPI payment business would keep revenue growth in check.
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Of the Rs 1,502 crore revenue reported in Q1, the payments business contributed Rs 900 crore, Rs 280 crore came from financial services while the rest was contributed from marketing services.
Paytm intends to add more lending partners (including banks), but believes that PL business run-rate would remain at similar levels, unless asset quality concerns ease.
The company is running pilots for the secured business, but is unlikely to gain scale in the near term, noted Emkay.
"Thus, we believe that slower disbursements, coupled with declining take rates (3-3.5 percent) as it switches to the distribution-only business model, could disrupt its strategy of monetizing the payment business, and could also hurt EBITDA margin," the brokerage said.
At 9:36 am, Paytm shares were trading over 2 percent lower at Rs 449 on the National Stock Exchange (NSE). While the stock has fallen 40 percent so far this year, it gained around 10 percent in the last one month.
According to analysts at Emkay, the recent up-move in Paytm stock price was mainly due to rising hope around swift full-business revival, which still looks distant.
"We believe that the long-pending FIPB approval for investment in its payment subsidiary, expected in near term, which is likely to pave the way for an a/c aggregator license, could be sentimentally positive," they said.
However, the benefit of this move in terms of new online merchant onboarding is expected to be seen only in the medium-to-long run.
Also Read | Paytm Q1 results: Net loss widens to Rs 839 crore; revenue falls 36%
Thus, the brokerage retained its 'reduce' rating on the stock, with a DCF-based revised target price of Rs 375 per share, up from Rs 300 earlier as visibility on business revival remains hazy and thus, risk-reward appears to be unfavourable post the recent run-up.
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