Buy One 97 Communications; target of Rs 1600: Emkay Global Financial

Emkay Global Financial' research report on One 97 Communications

One97 Communication (Paytm)’s Q2FY26 revenue was marginally ahead of the Street’s estimate, while profitability significantly beat expectations. Contribution profit increased 4.8% QoQ, while the decline in indirect expenses resulted in EBITDA increasing to Rs1.4bn in Q2, from Rs0.72bn in Q1FY26. Paytm is executing well on acquiring merchants by leveraging its superior Soundbox products and distributing loans to them. With low penetration of loans, we see a long growth runway for this business. On strong control over costs, we have increased our FY26E and FY27E EBITDA by 35% and 14%, respectively. The stock trades at 30x FY28E EV/EBITDA.

Outlook

Considering cash on the books of Rs13.1bn, the long growth runway for payments and financial services, and the various optionalities (such as BNPL, Wallet, scale-up of Rupay Credit Cards), we believe the risk-return is attractive. We retain BUY with a revised TP of Rs1,600 (earlier Rs1,500).