IGI Logo

One 97 Communications (Paytm)’s 1QFY27 results were strong, with beat on revenue and EBITDA led by strong growth in the Payments Business, continued momentum in the Financial Services (FS) Business, and tight cost control driving operating leverage. GMV growth accelerated to 31.7% yoy, from 27.5% and 23.0% in 4QFY26 and 3QFY26, respectively. While the merchant side of the business continues to scale, monetization on the consumer front is improving aided by Postpaid, personal loans, etc. The 13.6% beat on consensus EBITDA estimates was led by indirect cost rationalization. Overall, 1Q results reaffirm Paytm’s strong execution in acquiring consumers and merchants via payments and monetizing on the back of financial services cross-selling. The stock trades at 38.8x/25.1x FY28E/FY29E PER. We view risk-reward as favorable, given the long growth runway and multiple upside optionalities (eg potential UPI MDR, Wallet, scale-up of RuPay Credit Cards, Affordability offerings), supported by a robust cash balance of Rs135bn. We increase FY28E/29E PAT by 5.3%/5.6% on growth momentum and cost control, and raise our DCF-based target price by 13.3% to Rs1,700 from Rs1,500; maintain BUY

Beat on revenue led by Payments and Financial Services

Paytm posted 27.6% yoy revenue growth to Rs24.5bn, 3.1% ahead of the street. Excluding discontinued PIDF, revenue rose 31% yoy on online merchant momentum following the receipt of PA license. Subscription revenue per device fell to drive cross-sell and merchant retention, slowing net payment margin growth (Rs6.01bn in 1QFY27 vs Rs5.83bn in 4QFY26). FS (up 45.2% yoy) saw strength in Merchant/Consumer Loans, Equity Broking, and Wealth. Contribution margin fell by 25bps qoq to 55.1%, on higher payment processing cost.

Strong cost control drives EBITDA margin; raises margin expectations

Cost discipline was the key highlight: indirect expenses rose only 2.2% qoq to Rs11.5bn, resulting in EBITDA of Rs2.03bn (a 13.6% beat) and margin expansion of 250bps qoq to 8.3%. Non-sales employee and software/cloud costs fell 4.5% and 9.1% qoq, as AI-led productivity absorbed appraisal increments and optimized cloud efficiency. Basis sustainability of these measures, we raise FY28E EBITDA by 3.9%. Net profit stood at Rs2.2bn (in-line), while cash reserves strengthened to Rs135bn (vs Rs133bn in 4QFY26), positioning the company well for organic and inorganic growth.

Outlook and valuations  Multiple optionalities; reasonable valuations

We see a long growth runway for Paytm, anchored by its customer acquisition engine and cross-selling capabilities across financial products. Operating leverage is likely to continue driving medium-term margin expansion. We model 24% revenue CAGR over FY26-29E, expanding EBITDA margin to 16.1% by FY28E (vs 5.9% in FY26). The stock currently trades at 32x FY28E EV/EBITDA and 39x FY28E PER. We reiterate BUY and revise up our DCF-backed TP to Rs1,700 from Rs1,500, implying a 51/33x FY28/29E PER.

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354