Paytm’s big reset: How stake consolidation and AI are boosting growth

Public markets are a brutal place. They punish excesses, expose weak assumptions, and often remind companies that sentiment can turn faster than strategy. And as Benjamin Graham, the father of value investing, said, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine." Paytm has lived through both sides of that metaphor.

An unclear path to profitability, a high valuation, regulatory headwinds, and a ban on Paytm Payments Bank by the Reserve Bank of India sent its share price down more than 80% from its listing in late 2021. Management went back to the drawing board, promising to return stronger.

That commitment is beginning to show in the numbers as past issues subside. Paytm's shares are now up nearly 38% year-to-date, trading around ₹1,365 apiece.

In that direction, One97 Communications (Paytm's parent company) has completed the acquisition of the remaining stakes in three group entities. The consolidation is part of a broader effort to simplify the company’s corporate structure, and marks a key step in streamlining operations and sharpening focus on Paytm’s core businesses.

Stake consolidation

One97 Communications acquired an additional 9.99% stake in Foster Payment Networks, which operates core payment-processing infrastructure, taking its ownership to 100%. It also bought an additional 67.55% stake in Paytm Insuretech, making it a wholly owned subsidiary. In addition, it acquired the remaining 51.22% stake in Paytm Financial Services, its credit-distribution arm, bringing that entity under full control.

As a result, all three entities are now fully owned subsidiaries of One97 Communications. These acquisitions aim to simplify the group structure, strengthen governance, and bring all key financial-services and payments-related businesses under direct control.

The move creates a single, unified ownership framework that allows One97 to integrate and manage its payments, credit, and insurance stack more effectively. With full ownership, the company gains clearer oversight, stronger strategic alignment, and smoother inter-company coordination—supporting scalability, regulatory compliance, and operational efficiency.

In another development, One97 Communications transferred its offline merchant payments business to Paytm Payments Services, a wholly owned subsidiary, on a slump-sale basis. The transfer aims to consolidate the group’s online and offline merchant payments businesses under PPSL to improve efficiency and create synergy.

Financial recovery

While these structural moves are expected to benefit One97 Communications over the long term, its financials already reflect a steady turnaround. In the September quarter of FY26, operating revenue rose 24% year-on-year to ₹2,061 crore, supported by rising subscription merchants, higher payments gross merchandise value, and expanding distribution in financial services.

Growth in the core payments business has been broad-based. Payments services revenue rose 25% year-on-year to ₹1,223 crore, with a noticeable improvement in margins. Net payment revenue (payment revenues minus payment-processing charges) climbed 28% to ₹594 crore. A 27% jump in gross merchandise value (GMV) to ₹5.7 lakh crore drove the gains.

GMV represents the total value of merchant payments processed through Paytm’s platform. The rise in GMV was driven by a 6% increase in monthly transacting users (MTU) to 7.5 crore, aided by product-led improvements and new AI features. Paytm continued to prioritise merchant subscriptions for physical devices such as soundboxes, creating predictable and recurring revenue. Merchant subscriptions reached 1.37 crore, up 25 lakh from a year earlier.

Omnichannel push

Paytm aims to scale quickly across both offline small merchants and enterprise online merchants, positioning itself as a comprehensive merchant ecosystem provider. To do this, it transferred its offline merchant payments business to Paytm Payments Services (PPSL) on a slump-sale basis.

Consolidating online and offline payments under PPSL allows Paytm to operate a true omnichannel business, offering higher-margin products and value-added services such as spend analytics, settlement, and automated payouts.

Growth engine

The financial services division has become the company’s strongest growth driver. In Q2FY26, revenue from the distribution of financial services rose 63% year-on-year to ₹611 crore, supported by rising merchant loan disbursements and stronger collection performance for lending partners.

Repeat behaviour has improved as well. More than 50% of merchant loans were issued to existing borrowers, signalling strong stickiness and a maturing credit ecosystem. The number of customers availing financial services on the platform increased from 6.0 lakh in Q2 FY25 to 6.5 lakh in Q2 FY26, driven by merchant loans and expanding equity-broking activity.

Paytm has also relaunched Paytm Postpaid, offering up to 30 days of short-term credit, and is pushing its Margin Trading Facility, starting at 7.99% per annum, to deepen lending.

AI push

Paytm plans to scale financial-services distribution by adding more lending partners and strengthening collections using AI. AI now sits at the centre of its operating model, transitioning from a cost-optimisation tool to a major revenue driver.

The company is developing AI-led agents for small businesses that function like virtual COOs, CFOs, or CMOs. These services will be monetised through subscriptions and usage-based fees.

Rising leverage

With rising revenues and a stronger financial-services mix, operating leverage has started to build. International expansion is being evaluated as a long-term opportunity, though meaningful contribution is expected only in the next two to three years.

The company is now Ebitda positive, reporting ₹142 crore in Ebitda with a 7% margin, compared with a ₹404 crore loss a year earlier. Contribution profit rose 35% to ₹1,207 crore, with contribution margins expanding five percentage points to 59%. Improved net payment revenue, cost optimisation, a better financial-services mix, and lower device lifecycle management costs drove the gains.

Profitability uptick

The bottom line has improved as well. One97 posted a record PAT of ₹211 crore (before a one-time impairment of ₹190 crore on a loan to First Games Technology), compared with a ₹415 crore loss. First Games discontinued its real-money gaming operations following regulatory changes, leading One97 to fully write off its outstanding loan.

Looking ahead, indirect expenses are expected to grow materially slower than revenue, setting up significant operating leverage and further margin expansion. With payments stabilising, financial services scaling, and AI-led tools adding a new layer of monetisation, Paytm’s long-term financial trajectory looks far more predictable than it did a year ago. But valuation remains elevated: One97 now trades at a price-to-sales multiple of 11.2x, almost double its four-year median of 6.6x.

For more such analysis, read Profit Pulse.

Madhvendra has over seven years of experience in equity markets and writes detailed research articles on listed Indian companies, sectoral trends, and macroeconomic developments.

The writer does not hold the stocks discussed in this article.

The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.