Paytm up 4% as loan disbursements more-than-double in July to Rs 5,194 cr

Paytm shares advanced 3.9 percent to Rs 797 per share on the BSE in Friday’s intra-day deals after the fintech company shares a healthy business update for the month of July 2023. At 10:14 AM, shares of the company were 2 percent higher at Rs 783 as against a 0.47 percent gain in the benchmark S&P BSE Sensex.

During the month of July, Paytm catered to 93 million average monthly transacting users (MTU), up 19 percent year-on-year (YoY) from 78 million MTUs seen in July 2022, on the back of growing consumer engagement on the Paytm Super App.

Besides, the company continued to strengthen its leadership in offline payments, with 8.2 million merchants now paying subscriptions for payment devices, amid an increase of 0.38 million in the month of July 2023.

Paytm has started selling gift vouchers to merchants, which can be offered to Paytm users on App, making individual merchants more attractive to users. Paytm has scaled up such vouchers/deals substantially over\ the past few months using an employee base and such initiatives can add newer growth opportunities, while continuing to grow on existing strengths, believe analysts.

Further, the total merchant gross merchandise value (GMV) processed through the platform for the month of July 2023 was Rs 1.47 trillion ($17.9 billion), marking a YoY growth of 39 percent. “We continue to see an increase in GMV of non-UPI instruments like EMI and cards. We are focused on payment volumes that generate profitability for us, either through net payments margin or from direct upsell potential,” the company said in an exchange filing.

Regarding the loans business, Paytm said the loan distribution business witnessed healthy growth with total loans distributed for July 2023 growing 148 percent YoY to Rs 5,194 crore ($632 million).

During the April-June quarter of FY24 (Q1FY24), financial services and merchant payments segments led growth at 9.9 percent/14 percent QoQ (Adj. for UPI incentive). Thus adjusted Ebitda stood at Rs 84 crore.

Paytm’s partnered lending business has a take-rate of 3.5-3.75 percent, including incentives on collections. Due to elevated interest rates, Paytm took a hit of 0.1 percent in its take rates and lowered its incentive in Q1FY24. However, the company expects to take rates to stabilize going forward.

“Paytm’s highest ticket size (in merchant loans) is below Rs 0.2 million, and the company does not foresee any competitive pressure in this ticket size. Also, we expect further traction led by new partner additions,” said analysts at Dolat Capital in a result review report.

Accounting Q1 performance, the brokerage has tweaked growth estimates to reflect slight moderation in the lending business as the company focuses on the quality of the book. At the same time, scale-up is expected to continue in the merchant and consumer business.

“We raise revenue estimates by 0.9 percent/1.2 percent for FY24/FY25E. We have scaled up the Adj Ebitda margin estimate by 46/40bps for FY24/FY25E to capture increased efficiencies through operating leverage (indirect costs) and a better business mix. Given the management’s guidance on achieving positive free cash flow (FCF) by the end of FY24, we expect the loss to lower in FY24 materially (we expect it to turn PAT positive by Q4) and report a profit on FY25 annualized basis. We, therefore, up earnings by 19.6 percent in FY24E and ~3x in FY25E on a very small base,” it added. The brokerage has a ‘Buy’ rating on the stock with a target price of Rs 1,250.