Paytm hits over 3-mth high; surges 28% in 2 days on improved Q3 performance

Paytm reported adjusted Ebitda breakeven three quarters ahead of management's initial guidance of September 2023

Shares of digital financial services firm One97 Communications, which owns Paytm, hit over three-month high of Rs 669.60 as they zoomed 20 per cent on the BSE in Tuesday's intra-day trade.The massive buying comes on the back of improved financial performance of the company in the October-December quarter (Q3FY23).

The stock was trading at its highest level since October 18, 2022, having surged 28 per cent over the past two trading sessions. At 10:41 am, Paytm was trading 11 per cent higher at Rs 617.80 amid heavy volumes. The average trading volumes on the counter jumped more than two-fold with a combined 12.2 million shares having changed hands on the NSE and BSE till the time of writing of this report. In comparison, the S&P BSE Sensex was almost unchanged at 60,506.

In Q3FY23, Paytm's Ebitda (earnings before interest, taxes, depreciation, and amortization), an indicator of operational profit, before ESOP cost margin improved to Rs 31 crore. The company said it achieved operating Ebitda profitability three quarters ahead of guidance, driven by revenue growth across businesses, disciplined cost management, and operating leverage.

Paytm narrowed its consolidated net loss to Rs 392 crore in Q3FY23. The company had posted a net loss of Rs 778.4 crore in the same period a year ago. Its revenue from operations jumped about 42 per cent to Rs 2,062.2 crore during the quarter from Rs 1,456.1 crore in the year-ago period. The contribution profit, which excludes taxes and marketing cost, more than doubled to Rs 1,048 crore during the reported quarter on YoY basis.

Meanwhile, the company has completed a share buyback worth Rs 796 crore. The company's board had approved a share buyback worth Rs 850 crore at Rs 810 apiece.

Paytm is India's leading digital ecosystem with 337 million consumers and over 21 million merchants. The Paytm ecosystem covers payment services for consumers and merchants, financial offerings like mobile banking offerings through Paytm Payments bank, lending, insurance, and wealth management/broking services in order to complement its e-commerce and e-ticketing platforms.

"Paytm reported adjusted Ebitda breakeven three quarters ahead of management's initial guide of September 2023 target and Street expectations. This was mainly on the back of rising mix of high margin lending revenue, improving merchant subscription, reducing payment processing and promotional charges," analysts at BofA Securities said. The brokerage firm has a 'Neutral' recommendation on Paytm.

"We are optimistic on fundamentals and see room for Paytm to scale up aggressively without taking any balance sheet risks. While Paytm has key differentiating factors versus peers, overall given higher competition & additional regulatory risks, we expect slower path to monetization leading to delayed EBITDA breakeven. In our view, the lending business provides an upside optionality to Paytm giving Paytm room to scale up subject to execution," BofA added.

Those at JPMorgan, meanwhile, have an 'overweight' rating on Paytm, with a one-year target of Rs 950, as it believes Paytm can deliver high teen net margins, beyond FY26, once high ESOP cost base runs out, whilst delivering revenue growth near 30 per cent with positive free cash flow.