Neutral One 97 Communications Ltd For Target Rs. 750 - Yes Securities
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Result Highlights
* Revenue from operations: Revenue at Rs 23,345mn was up 13.2%/51.5% QoQ/YoY, sequentially driven by Payment services to Merchants
* Payment processing charges: Payment proc. charges were up 5.8%/0.8% QoQ/YoY and were 54.1% of Payments Serv. Rev., down -988/-2029 bps QoQ/YoY
* Contribution profit: Contribution profit at Rs 12,830mn was up 22.4%/138% QoQ/YoY, translating to a Contribution margin of 55%, up 415bps QoQ
* Expenses (excl Payment proc. charges): Total expenses were up 1.7%/12.5% QoQ/YoY. The YoY growth was driven by Emp. and Other Op. Exp.
* Standard EBITDA (Calculated): EBITDA loss, at Rs -1,291mn, lower -61%/-82% QoQ/YoY, translating to an EBITDA margin of -5.5%, up 1051bps QoQ
Our view – Greater profitability to be driven by operating leverage and not rising contribution margin
Excluding the impact of UPI incentive, the contribution profit margin was flattish sequentially: Excluding the UPI incentive attributable to 9M, the contribution margin would be 52%. The contribution margin for 3Q was 51%, which does not contain the UPI
incentive, implying flattish margin evolution. Revenue in 4Q contained Rs 1.33bn worth of UPI incentive that is attributable to 9MFY23. Management stated that, going forward, one can expect some improvement in contribution margin but it will not be as sharp as before. There is room for the adjusted EBITDA margin, however, to continue to move up for several years, driven by operating leverage.
Financial services remains the high-growth business for PAYTM, driven by loan distribution: Adjusted for UPI incentive, the Payments revenue is Rs 13.34bn, up 28% YoY. The Net Payments Margin, adjusted for the UPI incentive, was Rs 5.54bn, up 108%
YoY. Net Payments Processing Margin remains at the higher end of the 7-9 bps guidance. Financial services revenue for 4Q amounts to Rs 4.75bn, up 183% YoY. The quantum of loans disbursed in 4Q amounted to Rs 125.54bn, up 253% YoY.
We maintain ‘Neutral’ on PAYTM with a revised price target of Rs 750: We value PAYTM at 4.3x FY24 P/S to arrive at our price target of Rs 750.
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