Paytm shares drop over 3% despite positive Q2; here’s what analysts say

Shares of One97 Communications, the parent of fintech major Paytm, dropped over 3% in early trade on Monday even after the company posted positive operating profit for the fourth consecutive quarter in Q2 FY24. The Vijay Shekhar Sharma-led company reported broad-based improvement in its financial performance, supported by strong revenue, increased in contribution margin, and operating leverage.

Snapping five sessions gaining streak, Paytm shares declined as much as 3.5% to hit a low of ₹953, against the previous closing price of ₹987.35 on the BSE. The stock witnessed profit booking at higher levels after rising nearly 6% in the last five straight sessions. The fintech major hit a 52-week high of ₹998.30 on October 20, 2023, and a 52-week low of ₹439.60 on November 24, 2022.

In the calendar year 2023, Paytm shares surged over 80%, while it gained over 46% in the last one year. The counter added 44% in six months, whereas it rose 13% in a month and 2.5% in a week.

For the July-September quarter of FY24, Paytm reported consolidated net loss of ₹292 crore, against a loss of ₹571 crore in the year ago period and ₹358 crore in June quarter of FY24, with its overall direct expenses dipping to ₹1,093 crore during the quarter under review.

The consolidated revenue rose 32% to ₹2,519 crore for the second quarter ended September 2023, from ₹1,914 crore in the corresponding period last fiscal, driven by increase in merchant subscription revenues, increase in gross merchandise value (GMV) and growth in disbursements of loans through our platform. Sequentially, the revenue grew 7% from ₹2,341 recorded in June quarter of the current financial year. 

The contribution profit jumped 69% year-on-year (YoY) to ₹1,426 crore, while EBITDA without counting employee stock option (ESOP) costs stood at ₹153 crore compared to a loss of ₹166 crore in Q2 FY23.

As per the company, the payment business continues to scale led by increase in GMV and higher subscription revenue. In Q2 FY 2024, payments revenue grew by 28% YoY to ₹1,524 crore, despite some of the revenues getting pushed to Q3 FY24, it said.

Analysts view on Paytm Q2

Domestic brokerage Motilal Oswal has given a 'Buy' rating on Paytm shares with a target price of ₹1,160, saying that Q2 FY24 was largely in line, aided by sustained momentum in GMV and healthy growth in disbursements. The agency expects the company to achieve the EBITDA breakeven by FY25.

Global brokerage Bernstein has assigned an 'Outperform' rating on the stock with a target price of ₹1,100 per share, while BoFA Securities reiterated its ‘Buy’ rating and raised the target price to ₹1,165 from ₹1,020 earlier.

Ahead of Q2 results, Jefferies initiated coverage on the digital payments stock with a ‘Buy’ rating, expecting Paytm to turn profitable in the next four quarters. It set a target price of ₹1,300, an upside potential of 34% from the current price levels.

“We expect revenue growth to remain in the fast lane (31% CAGR over FY23-26E) driven by (a) 55% CAGR in financial services revenues led by 4x jump in credit originations, and (b) 50% CAGR in merchant subscription revenues on the back of aggressive deployment of merchant devices (3x network expansion) as Paytm asserts its market leadership,” the foreign brokerage said in its note last week.

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