Paytm Stock Drops 2% on Q1 Loss; Emkay Keeps 'Reduce' Rating

Paytm shares dropped over 3% on July 22 following a weak quarterly performance for Q1 FY25. One 97 Communications, the company behind Paytm, reported a net loss that increased by two-and-a-half times year-on-year to ₹839 crore.

At 9:36 am IST, Paytm share price were trading over 3% lower at ₹449 on the National Stock Exchange (NSE). Although the stock has fallen 40% this year, it saw a 10% rise in the past month.

The Vijay Shekhar Sharma-led fintech company experienced a 36% year-on-year decline in revenue from operations, amounting to ₹1,502 crore in Q1 FY25. This decline is primarily due to the restrictions imposed by the Reserve Bank of India (RBI) on Paytm Payments Bank Limited (PPBL), which have significantly affected the business. Previously, Paytm wrote off ₹227.1 crore worth of investment in PPBL, accounting for it as impairment losses.

Of the ₹1,502 crore revenue reported in Q1, ₹900 crore came from the payments business, ₹280 crore from financial services, and the remainder from marketing services.

One 97 Communications reported a consolidated net loss of ₹839 crore in Q1 FY25, up from ₹357 crore a year ago, and a 50% increase from ₹550 crore in the March 2024 quarter. The company's EBITDA before ESOP loss for the reported quarter was ₹545 crore.

According to Emkay Global, a meaningful revival in Paytm's lending business seems unlikely in the near term due to ongoing partner and regulatory concerns. This, along with issues in the low MDR UPI payment business, is expected to constrain revenue growth. Paytm aims to add more lending partners, including banks, but anticipates that the PL business run-rate will remain similar unless asset quality concerns are addressed. The company is conducting pilots for the secured business, but scaling up is not expected soon.

Emkay analysts believe that slower disbursements and declining take rates (3-3.5%) could disrupt Paytm's strategy for monetizing the payment business and impact EBITDA margins. They noted that the recent rise in Paytm's stock price was due to hopes for a swift business revival, which still appears distant. They also mentioned that the long-pending FIPB approval for investment in Paytm's payment subsidiary, expected soon, could be sentimentally positive. 

However, the benefits of this move in terms of new online merchant onboarding are anticipated to be seen only in the medium-to-long term. Emkay retained its 'reduce' rating on the stock, with a revised target price of ₹375 per share, up from ₹300, citing hazy visibility on business revival and unfavourable risk-reward post the recent run-up.

Motilal Oswal also noted a 41% decline in net payment margin, leading to a drop in contribution margin to 50.3%. They reduced their contribution profit estimates by 8% and 3% for FY25 and FY26, respectively, and anticipate Paytm to become EBITDA positive by FY27. They maintained a 'neutral' rating on the stock with a target price of ₹500.

Other brokerage firms have varied outlooks: Bernstein maintained an 'outperform' rating with a target price of ₹600, Jefferies maintained a 'hold' rating with a target price of ₹420, and Macquarie maintained an 'underperform' rating with a target price of ₹325 per share.