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Home / Companies / Company Results /  Paytm Q1 results preview: Strong growth momentum in revenue likely to remain, EBITDA margin may improve
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One 97 Communications, listed as Paytm, witnessed a bullish sentiment on Wednesday with shares skyrocketing by about 8% on Dalal Street. The shares are in focus ahead of its financial performance for the quarter ended June 30, 2022 (Q1FY23). The mobile payments and financial services provider's operating performance has consistently remained strong. Further, the fintech's rapid growth in lending products results in attractive profitability. The company will announce its Q1 results on August 5.

On BSE, Paytm shares closed at 804.15 apiece up by 49.95 or 6.62%. The shares have touched an intraday high of 814.55 apiece - resulting in an overall rise of 8% in the day. At the current market price, the company's valuation is around 52,177.33 crore.

From July 29 to August 3, Paytm shares have climbed nearly 21% on BSE.

Paytm has announced its provisional data for Q1FY23. Paytm's disbursements crossed at an annualised run rate of 24,000 crore on the platform in Q1 of this fiscal.

During Q1FY23, Paytm disbursed loans through its platform to the tune of 8.5 million loans up by 492% yoy, while the value of loans disbursed grew by 779% yoy to 5,554 crore ($703 million). Also, the company posted strong growth in total merchant payments volume as its GMV came in at 2.96 lakh crore ($37 billion), marking a 101% yoy growth in Q1FY23.

Further, in Q1FY23, Paytm maintained its leadership with the deployment of 3.8 million devices at merchant stores across the country. Notably, Paytm witnessed new records in user engagement, with the average monthly transacting users (MTU) at 74.8 million, registering a growth of 49% yoy in Q1FY23. In June alone, the MTU stood at 75.9 million.

Here's what Goldman Sachs expects from Paytm earnings for Q1FY23:

Manish Adukia, Rahul Jain, and Harshita Wadher analysts at Goldman Sachs said, "We forecast 1QFY23 revenue growth for Paytm to remain elevated at 90% YoY ( vs 89% YoY in 4Q); we forecast Payments revenue to grow 74% YoY in 1Q (+80% in 4Q), while financial services revenue to grow 305% YoY (+342% in 4Q) on the back of strong disbursals."

Further, the trio said, "We expect robust growth (of 40% qoq) in the commerce segment in 1QFY23, driven by strong recovery in travel and cinema demand during the quarter; however, we expect near-term pressure on travel demand due to higher ticket prices and expect Sep quarter to remain muted for this segment. We expect Paytm’s cloud business to see a modest 3% qoq growth (50% YoY), as we expect some pressure in the digital advertising business."

However, the analysts added, "we forecast blended payments take rate to decline to 0.37% in 1QFY23 (vs 0.40% in 4Q) as a result of some correction in blended non-UPI take rate. However, for net take rate, or spreads, which is revenue less payment processing charges (PPC) as a proportion of GMV, we forecast improvement to +11 bps in 1QFY23 (vs +10 bps in 4Q) as we forecast a rising share of device revenues. Widening of spreads should continue to aid Paytm’s profitability, in our view."

Also, the analysts said, "We expect continued improvement in cash burn (adjusted EBITDA) to -Rs3.2 billion in 1Q (vs -Rs3.7 billion in 4Q), with a 490 bps qoq improvement in adjusted EBITDA margin to -19%. We see Paytm as being firmly on the path of profitability, with adjusted EBITDA breakeven by end of FY24E."

The analysts believe investor focus during the quarter will continue to be on the sustainability of payments take rate (which has been seeing a stable/rising trend in recent quarters), translation of robust loan growth into revenue and rate of improvement in the absolute cash burn. 

Goldman Sachs' analysts recent investor conversations suggest that they are closely following credit quality metrics for Paytm, as this could determine scalability of the lending portfolio.

On stock price, these analysts said, "We view risk-reward for Paytm as skewed to the upside, with c.106% upside in our bull case vs 17% downside in bear case; our analysis suggests the stock is still pricing in significant regulatory, competition as well as execution headwinds, which we view as unwarranted. We remain Buy rated on Paytm and believe the current share price continues to offer a compelling entry point into India’s largest and amongst the fastest-growing fintech platforms."

"We make modest changes to our estimates to take into account reported metrics by Paytm until June, with our FY23E-25E revenue/EBITDA estimates changing by up to 3%. Our 12-month target price for Paytm moves to Rs1,050 (from Rs1,070) as we: (1) incorporate estimate changes as discussed above; (2) roll forward our valuation by three months to Jun ‘24; and (3) raise our risk-free rate by 50 bps to reflect a rising interest rate environment and to be in line with the rest of our coverage; our WACC moves to 14% from 13.5%, with our terminal growth rate assumption of 5% staying unchanged. With 50% potential upside to our revised target price, we reiterate our Buy rating on the stock," they added.

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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