Buy One 97 Communications; target of Rs 975: Motilal Oswal

Motilal Oswal's research report on One 97 Communications

Paytm reported a net loss of INR2.2b (vs. est. of INR2.6b loss) in 3QFY24. Total revenue grew 38% YoY/13% QoQ to INR28.5b (broadly in line), driven by healthy growth in GMV and an increase in merchant subscription revenues, partly offset by some moderation in disbursements. Net payment margin grew 63% YoY/6% QoQ to INR7.5b, which, along with healthy financial services and commerce revenue, resulted in contribution margin of ~53% (vs. est. of 55%). We increase our adj. EBITDA earnings estimate by 19%/2% for FY24/FY25, and we expect Paytm to turn profitable in FY26 and expect it to report EBITDA of INR3.6b by FY25. We retain our BUY rating on the stock.

Outlook

We estimate Paytm to achieve EBITDA breakeven in 2HFY25 and start reporting profits in FY26. We value Paytm based on 20x FY28E EBITDA and discount the same to FY26E at a discount rate of ~15%. We thus value the stock at INR975, which implies 4.2x FY26E P/Sales.