Neutral One 97 Communications for the Target Rs 1,475 by Motilal Oswal Financial Services Ltd
Revenue growth steady; EBITDA margin improves GMV grows 31% YoY
* One 97 Communications (PAYTM) reported strong revenue growth of 28% YoY/8% QoQ to INR24.5b (in line) and robust PAT of INR2.2b (est. INR1.9b) in 1QFY27.
* Healthy revenue growth was aided by strong GMV growth, market share gains in offline business and tailwinds in online business after the receipt of online PA license last year.
* Financial services revenue grew strongly by 45% YoY/9% QoQ, aided by growth in the merchant base and an increase in the repeat borrower mix.
* Net payment margin grew 13% YoY/3% QoQ to INR6b (8bp of GMV vs. 9bp/10bp in 4Q/3QFY26) amid faster growth in payments processing charges. Payment processing margin (PPM) improved to 4bp amid higher growth in profitable MDR-bearing instrument such as CC on UPI, and postpaid.
* Contribution margin stood flat at 55.1% (in line), aided by healthy revenue and GMV growth and controlled expense.
* We raise our contribution profit estimates by 4%/6% for FY27/28E, driven by strong traction in payments and financial services. We now expect PAT of INR10.2b/INR19.2b in FY27/28E. We value PAYTM at INR1,475, based on 20x FY32E PAT discounted to FY28E. We retain our Neutral rating.
GMV growth gaining traction; contribution margin steady
* PAYTM reported PAT growth of INR2.2b (est. INR1.9b), aided by strong revenue and GMV growth (up 31% YoY/9% QoQ).
* Revenue growth was robust at 28% YoY/8% QoQ to INR24.5b (in line), led by strong growth in payments and financial services (up 37% YoY/9% QoQ). Separately, financial services grew 45% YoY/9% QoQ. Subscription revenue (calc) was up 14% YoY/4% QoQ.
* Revenue from marketing services was flat QoQ (down 3% YoY) at INR2.4b, while MTU rose 8% YoY/4% QoQ.
* PPM improved to 4bp, expanding from 3bp earlier. PAYTM continues to see an improvement in PPM amid higher growth of credit cards on UPI and expansion of offerings such as EMI. ? Net payment margin expanded 13% YoY/3% QoQ to INR6b (declined to 8bp of GMV in 1QFY27 vs. 9bp in 4Q/10bp in 3Q) amid faster growth in payment processing charges (up 37% YoY/15% QoQ).
* Contribution margin was largely stable at 55% (est. 55%), aided by healthy revenue growth and controlled direct expenses.
* EBITDA margin grew to 8.3% (vs. 5.8% in 4QFY26) amid lower indirect expenses (down 9% YoY/2% QoQ), as operating leverage continues to gain momentum. PAYTM expects EBITDA margin to improve, led by operating leverage, low indirect expenses and AI-led efficiency gains.
* The number of registered merchants grew by 11% YoY/2% QoQ to 50m, while payment devices grew by 21% YoY/4% QoQ to 15.7m.
Valuation and view: Reiterate Neutral with TP of INR1,475
* PAYTM reported a strong quarter, driven by robust revenue growth on healthy GMV expansion and continued market share gains in payments. Management expects FY27 revenue growth to exceed the 22% delivered in FY26, while indirect expenses are likely to grow at a slower pace than revenue.
* PPM improved to 4bp (vs. 3bp earlier), aided by a higher mix of profitable MDRbearing instruments, including credit cards on UPI and EMI transactions.
* The company remains on track toward sustainable profitability, supported by operating leverage and resilient GMV growth. Contribution margin came in at 55.1%, impacted by promotional and cashback incentives, though improving trends in the lending business should support margins ahead.
* We raise our contribution profit estimates by 4%/6% for FY27/28E, driven by strong traction in payments and financial services. We now expect PAT of INR10.2b/INR19.2b for FY27/28E. We value PAYTM at INR1,475, based on 20x FY32E PAT discounted to FY28E. We retain our Neutral rating on the stock.
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