Shares of One97 Communications, which owns and operates digital payments company Paytm, tumbled 3% in Monday's (October 23) trade despite the fintech major reporting a largely in-line September quarter (Q2FY24) numbers, with sustained momentum in gross merchandise volume (GMV) and healthy growth in disbursements.

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The scrip was trading 2.36% lower at ₹964.35 apiece on the NSE at around 10 am. Paytm shares may have more than doubled from its all-time low of ₹438 earlier in 2023, but it still remains nearly 55% below its IPO price of ₹2,150.

On a year-to-date basis, the stock has rallied 80%, outperforming benchmark Nifty 50, while it has risen 46% in the last one year.

While Yes Securities has maintained a less-than-bullish ‘Add’ rating on Paytm with a revised price target of ₹1100, Motilal Oswal retained a 'Buy' view with a target of ₹1,160.

Meanwhile, global brokerage firm Bernstein, which had initiated coverage on the stock recently, has an 'Outperform' rating on the counter with a target of ₹1,100 per share. This implies a potential upside of 14% from the current market levels.

Paytm posted a narrow net loss of ₹292 crore in the second quarter. Total revenue grew 32% year-on-year and 8% quarter-on-quarter to ₹2,520 crore, supported by healthy growth in GMV, disbursements, and addition of subscription devices.

The fintech major's net payment margin climbed 60% YoY and 9% QoQ to ₹710 crore in Q2 due to higher mix of non-UPI payment. This, along with healthy financial services revenue, resulted in improvements in contribution margin to 57%.

According to analysts, the management expects some tailwinds in the next few quarter and festive season should aid business volumes in the third quarter.

Adjusted EBITDA was slightly below analysts' estimates but Motilal continues to believe that Paytm will achieve earnings breakeven in FY25. The brokerage Motilal Oswal has revised its estimates slightly upwards and expects Paytm to report EBITDA of ₹790 crore by FY25 as against an earlier estimate of ₹780 crore.

Motilal said that consistent improvement in contribution margin and operating leverage will continue to drive operating profitability.

Meanwhile, Bernstein said the company continued to show strong growth in the second quarter. The personal loan segment saw a muted growth, but the company reported stable margins, progress towards profitability, and healthy payment growth.

Overall EBITDA margin improved, led by higher share of lending revenues, Bernstein said. The fintech major also witnessed QoQ stabilisation of non-direct expenses.

Ahead of Paytm's Q2 numbers, Jefferies initiated coverage on the counter with a ‘Buy’, citing the company’s increased credit business and the monetisation of its large eco-system. The global brokerage has a target of ₹1,300 per share on the stock.

Jefferies said the continued momentum in credit originations and margin expansion in payments will upfront profitability ahead of market expectations. "In four quarters, Paytm will enter the global list of large profitable fintechs, and valuations are yet to reflect its changed profile."

The foreign brokerage had also pointed out regulatory risk, supply pressure from private equity (PE) selling, and deterioration of asset quality, which will impact credit business growth as key risks for the company.

(Edited by : C H Unnikrishnan)

First Published:Oct 23, 2023 10:40 AM IST