Paytm up 5% on sustained growth in Q4; JPMorgan sees 37% upside

Paytm

Paytm’s shares were trading 5 percent up on May 8 morning after the digital payments company’s net loss narrowed sharply to Rs 168 crore in the March quarter of FY23 from Rs 761 crore in the year-ago period.

Paytm’s parent One 97 Communications Limited attributed the improved performance to an increase in gross merchandise value (GMV), higher merchant subscription revenues, growth of loans disbursed, and full years’ UPI incentives reported during the quarter.

Revenue from operations increased 52 percent year on year (YoY) to Rs 2,335 crore in Q4FY23, with GMV going up 40 percent to Rs 3.62 lakh crore, the company told exchanges on May 5.

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The company expanded its EBITDA before ESOP (employee stock options) costs, including UPI incentive applicable for Q4, to Rs 101 crore, compared to Rs 368 crore in Q4 FY22.

The sustained improvement in contribution profit and operating leverage enabled Paytm to achieve EBITDA before ESOP valued at Rs 176 crore, further reporting an improved EBITDA by Rs 602 crore YoY.

For the full year FY23, Paytm's revenue growth stood at 61 percent YoY to Rs 7,990 crore, driven by payments monetisation and the growing scale of the loan distribution business.

The contribution margin improved from 30 percent in FY22 to 49 percent in FY23, primarily due to improved payments profitability and the growth in the high margin loan distribution business. FY23 net loss narrowed to Rs 1,777 crore compared to Rs 2,396 crore in FY22.

Foreign brokerage firm JPMorgan has an “overweight” call on the stock with a target price (TP) of Rs 950, implying an upside of 37 percent from current levels.

The brokerage firm believes that consistent execution on profitability will keep the company on track to tap an attractive profit pool and expects it to remain FCF (free cash flow) & PAT (profit after tax) breakeven in FY25. Paytm can be the first Indian B2C internet stock to trade on profit rather than revenue multiples, it added.

Also Read: Paytm focused on reaching financial milestone 'in near future,' CEO Vijay Shekhar Sharma says

Its market capitalisation has increased 30 percent in the last year and over 35 percent this year. At 10.24 am, the scrip was trading 4.5 percent higher at Rs 720.65, with the benchmark Nifty up 0.91 higher at 18,233.10 points.

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