Add One 97 Communications Ltd For Target Rs. 1050 By Yes Securities Ltd
Paytm’s future path becomes clearer
Our view – Goal of EBITDA breakeven this year seems on track, giving the management confidence to target PAT breakeven
Revenue aspects – Financial Services takes the forefront in pushing revenue growth: Total Revenue at Rs 18,278mn was up/down 10.1%/-35.9% QoQ/YoY, sequentially driven higher by financial services and other operating revenues. Revenue from Payments services was up 6.0% QoQ to Rs 10.03bn. Revenue from Financial Services business was up 33.5% QoQ to Rs 5.02bn. The Financial Services business saw better take rates during the quarter driven largely due to higher trail-based revenue and higher collection efficiency.
Profitability – After closing in on EBITDA breakeven the company targets PAT breakeven: EBITDA before ESOP in 3Q has improved sequentially at -Rs.0.4bn as against -Rs.1.85 bn in 2Q. The company has reiterated its guidance to be EBITDA before ESOP breakeven in 4Q but further added would be able to achieve PAT breakeven in 2-3 quarters
Business pivot – Loan disbursements driven by merchant loans: The personal loans segment distribution was down -11.7% QoQ whereas the merchant loans distribution grew by 16% QoQ. Around 80% of the merchant loan distributed were on DLG. The DLG given is mostly in the merchant loans and the share of the same is very small in personal loans.
We maintain an ‘ADD’ rating on PAYTM with a revised price target of Rs 1050: We value PAYTM at 6.6x FY26 P/S to arrive at our price target.
(See Comprehensive con call takeaways on page 2 for significant incremental colour.)
Other Highlights (See “Our View” above for elaboration and insight)
* Payment processing charges: Payment proc. charges was up/down 10.3%/-42.0% QoQ/YoY and were 56.9% of Payments Serv. Revenue, up/down 224/-163bps QoQ/YoY.
* Contribution profit: Cont. profit at Rs 9,590mn was up/down 7.3%/-36.9% QoQ/YoY, with a Contr. margin of 52.5%, down -139bps/-87bps QoQ/YoY.
* Expenses (excl Payment proc. charges): Total exp. were down -4.3%/-27.0% QoQ/YoY, YoY driven lower by Employee exp and Marketing exp.
* EBITDA (Before ESOP): EBITDA loss was at -Rs 0.41mn, against -Rs. 1,853mn in 2QFY25 and Rs. 2,185mn in 3QFY24, translating to an EBITDA margin of -2.2%, improving by 896bps QoQ.
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