Shares of Paytm parent One 97 Communications saw a 3% rise on October 23, 2024, after the company received approval from the National Payments Corporation of India (NPCI) to onboard new UPI users. This nod comes after nearly nine months of restrictions imposed by the Reserve Bank of India (RBI), preventing Paytm from adding new customers to its Unified Payments Interface (UPI) services.
For those looking to buy shares online, this development could signal potential growth for Paytm as it looks to increase UPI transaction volumes, which is likely to have an impact on its revenue in the coming quarters.
Paytm's Q2FY25 results: Net profit driven by a one-time gain
Just before the NPCI's approval, Paytm announced its Q2FY25 financial results on October 21, 2024. The company reported a net profit of ₹930 crore, a significant recovery from a net loss of ₹290 crore in the same period last year. However, this profit was largely driven by a one-time gain of ₹1,345 crore from the sale of its movie ticketing business to Zomato.
Excluding this one-time benefit, Paytm would have reported a net loss of ₹415 crore, a larger loss compared to the previous year. This adjustment is crucial for those who wish to buy shares online, as it offers a more accurate picture of the company's underlying financial performance.
Stock performance: Underperformance relative to Nifty
Despite the recent gains, Paytm shares have risen only around 5% so far this year, underperforming the Nifty's 12% return during the same period. Paytm's share price ended over 5% lower at ₹684 in the previous trading session. The stock has experienced a 26% decline over the past 12 months, compared to Nifty's 28% rise in the same timeframe.
This performance is important to consider for individuals interested in buying shares online, as it reflects Paytm's stock volatility over the past year.
Mixed reactions after Q2 results
Brokerages have shown mixed reactions to Paytm's Q2 results. Jefferies, for example, maintained a 'Hold' rating on Paytm with a target price of ₹700 per share. The firm noted that the company's EBITDA losses have improved due to a 13% quarter-on-quarter (QoQ) reduction in costs and recovering topline figures.
Moreover, Jefferies mentioned that Paytm's ramp-up in loan disbursals could accelerate its journey towards EBITDA breakeven, especially with the recent NPCI approval. This indicates a potentially stronger performance for those looking to buy shares online in fintech companies like Paytm.
Bernstein's outlook: Optimistic but cautious
Bernstein, on the other hand, has given Paytm an 'Outperform' rating with a target price of ₹600 per share. Bernstein's report highlighted that Paytm's Q2 performance showed positive growth in gross merchandise value (GMV) and merchant loan disbursals. However, the report also raised concerns about the continued decline in Monthly Transacting Users (MTUs) and a sequential drop in personal loan disbursals.
Bernstein noted that Paytm's focus on cost control was apparent, as indirect expenses saw a sharp decline in Q2. This could be a key factor to watch for investors aiming to buy shares online, as improving cost efficiencies may signal better financial health in the future.
Paytm's operational metrics: Improvement in margins
Paytm's Q2 revenue declined by 34% year-on-year (YoY) to ₹1,660 crore, but sequentially, the income rose from ₹1,501 crore in Q1FY25. The company's net payment margin increased to ₹465 crore, mainly due to improvements in its payment processing margins, better realisation from devices, and GMV growth.
For those looking to buy shares online, this sequential improvement in revenue and margins may indicate potential stabilisation. However, the YoY decline shows the company is still facing challenges in growing its revenue base.
Market impact of NPCI nod to onboard UPI users
With NPCI's recent approval, Paytm will now be able to onboard new UPI users. This could result in a rise in transaction volumes for the company, boosting its UPI business. UPI remains a key segment for fintech players in India, and this development could have a significant positive impact on Paytm's operational performance in the coming quarters.
For those interested in buying shares online, this approval could act as a potential growth driver for the company's stock, as the fintech firm may expand its customer base and increase its UPI transactions, further supporting revenue growth.
Brokerages' target prices: Jefferies vs Bernstein
Jefferies' target price for Paytm remains at ₹700 per share, while Bernstein has a slightly lower target of ₹600. Both firms acknowledge Paytm's efforts in cost control and revenue improvement, but they differ in their long-term outlooks. Jefferies maintains a cautious stance, while Bernstein is more optimistic about Paytm's recovery trajectory.
Investors planning to buy shares online should keep these target prices in mind, as they reflect the mixed sentiment from financial analysts regarding Paytm's future performance.
Watch for further developments
With the NPCI approval to onboard new UPI users and mixed reactions from brokerages following Paytm's Q2 results, it is clear that the fintech firm is at a critical juncture. The company has shown improvement in some areas, such as cost control and margins, but underlying challenges remain.
For those looking to buy shares online, it is essential to monitor Paytm's future developments, particularly around its UPI business expansion and overall profitability. With analyst ratings ranging from 'Hold' to 'Outperform,' the company's stock performance will likely be influenced by its ability to execute its growth plans and manage costs effectively.
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