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Indian fintech leader Paytm announced its financial results on Monday. The company’s revenues surged 76% y-o-y to ?1914 crore, beating analyst estimates. On average, analysts from top firms like Goldman Sachs, CITI, JP Morgan, Axis Capital, and ICICI Securities expected the company’s revenue to be Rs 1,836 crore — a growth of 69%.

“Paytm had reported earnings better than estimates, lending revenue streams’ acceleration and improvement in margin continue,” said Kunal Shah from ICICI Securities post-earnings note

The company has indicated a resurgence in its business performance over the past few quarters. The company’s payments business revenue grew 56% YoY and 9% QoQ in Q2FY23 with continued platform expansion, higher user engagement, a growing merchant base and devices-led leadership in offline payments. Revenue from payment services to consumers stood at Rs. 549 crore, up by 55% YoY, while payment services to merchants were Rs. 624 crore, up by 56% YoY. This was achieved without any UPI incentive.

Kunal, in his note, further mentioned, “Revenue from operations grew much better than expectations in financial services business further supported by expansion in the merchant base leading to increase in subscription and MDR revenues, increase in payment gateway revenue, higher GMV in online business, primarily e-commerce and momentum in cloud services with growth in advertising.”

In the regulatory filing around quarterly results, the company mentioned that its net payment margin (calculated as payments revenues plus other operating revenues, less payment processing cost) stood at Rs. 443 Cr, up 428% YoY. Its commerce and cloud services reported revenue of Rs. 377 crore — a 55% YoY growth. Paytm’s rapid expansion in loan distribution has become the main catalyst for its financial services revenue, which now accounts for 18% of the company’s total revenue, compared to 8% in Q2FY22. Total revenue from the financial services business stood at Rs. 349 crore, up 293% YoY and 29% QoQ.

Based on the company’s strong numbers, Rahul Jain from Dolat Capital reiterated the BUY rating for Paytm at a target price of ?1,400. “We believe the strong beat on the quarterly performance both in terms of growth and profitability suggest Paytm is moving well on its ‘Path to Profitability’ objective. We believe it can sustain/accelerate its current growth momentum and thus maintain our positive view on the stock with a DCF-based TP of Rs1400 and may review our estimates post the earnings con-call,” he said in a note after the earnings.

The analysts have been looking at this stock with high anticipation, hinging on the vision of Paytm to achieve breakeven in terms of EBIDTA by September 2023. The company, post its IPO, has successfully scaled its lending business, thereby unleashing a highly scalable and robust business model designed for value creation.

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