Buy One 97 Communications Ltd For Target Rs.550 by Yes Securities
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Management aspires for operational profitability this financial year itself
Profitability – The company is aiming to deliver quarterly profitability within this financial year itself: This profitability is on EBITDA before ESOP basis and without considering UPI incentive. For the quarter, the overall contribution profit was down - 42% YoY at Rs 7.55bn, translating to a contribution margin of 50.3%, down by -537bps YoY and -647bps QoQ. EBITDA before ESOP cost stood -Rs 5.45bn, which translated to an adjusted EBITDA margin of -36.3%, as against 3.5% in 1QFY24.
Customer addition –Resumption of customer addition is something investors can look forward to: The company is at the tail-end of migration to other banks. Once this is complete, it would be able to go to the NPCI to allow customer addition. This should happen in the current financial year.
Revenue aspects – Overall revenue was down -36% YoY to Rs 15.02bn for the quarter, the impact from RBI directives being felt: Revenue from Payments services to consumers was down -85% YoY to Rs 0.83bn. Revenue from Payments services to merchants was down -4.9% YoY to Rs 8.01bn. Revenue from Financial Services business was down -46% YoY to Rs 2.80bn. The revenue from Marketing Services (commerce and cloud business) in 1Q stood at Rs. 3.21bn, down by -20.7% YoY.
We maintain a recently-assigned (Mar 2024) ‘BUY’ rating on PAYTM with a revised price target of Rs 550: We value PAYTM at 3.3x FY26 P/S to arrive at our price target.
Result Highlights (See “Our View” above for elaboration and insight)
* Revenue from operations: Revenue at Rs 15,016mn was down -33.8%/-35.9% QoQ/YoY, sequentially dragged lower by all business segments.
* Payment processing charges: Payment proc. charges were down -27.7%/-32.5% QoQ/YoY and were 58.5% of Payments Serv. Revenue, up 1253bps/358bps QoQ/YoY.
* Contribution profit: Cont. profit at Rs 7,555mn was down -41.3%/-42.1% QoQ/YoY, with a Contr margin of 50.3%, down -647bps/-537bps QoQ/YoY.
* Expenses (excl Payment proc. charges): Total exp. were up/down 0.1%/-4.9% QoQ/YoY, YoY driven lower by Employee exp and Marketing exp.
* Standard EBITDA (Calc.): EBITDA loss was at -Rs 7,922mn, against -Rs. 2,235mn in 4QFY24 and -Rs. 2,927mn in 1QFY24, translating to an EBITDA margin of -52.8%, declined -4290bps QoQ.
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SEBI Registration number is INZ000185632
