Paytm stock jumps despite wider Q4 loss. Can it sustain the momentum?

One97 Communications Ltd, the parent firm of digital payments app Paytm, posted a wider net loss for the fourth quarter ended March 31 but its shares jumped on Monday.

Paytm said over the weekend that its loss widened to Rs 762.5 crore for the March quarter from a loss of Rs 444.4 crore in the corresponding quarter of the previous fiscal year.

Revenue from operations surged 89% to Rs 1,541 crore.

While net loss widened, the EBITDA loss before costs of employee stock options narrowed to Rs 368 crore from about Rs 420 crore a year earlier.

For the full year FY22, the company’s net loss widened to Rs 2,396 crore from Rs 1,701 crore in the previous year. Revenue from operations for FY22 jumped 77% from the previous year to Rs 4,974 crore.

The EBITDA loss before ESOP costs for the full year stood at Rs 1,518 crore, down from Rs 1,655 crore in FY21.

The company said it was on track to break even at the EBITDA level by September 2023. “This will be driven by continued revenue growth, along with moderation in costs as operating leverage kicks in,” it said in a statement.

Other key highlights

1) Q4 contribution margins rose to 35% from 31% in Q3 and 21% in Q4 FY2021. This was driven by improvement in payments contribution margins, growth of high-margin financial services, and increased margin in merchant services.

2) Gross Merchandise Value was Rs 2.6 lakh crore for Q4, a growth of 104% YoY.

3) GMV for the full year FY22 doubled to Rs 8.5 lakh crore from Rs 4 lakh crore in FY21.

4) Average Monthly Transacting Users increased 41% to 70.9 million for Q4. The company disbursed 6.5 million loans in the quarter amounting to Rs 3,553 crore.

5) The number of loans disbursed in the quarter grew by 374% YoY, and the number of loans disbursed was up by over 400%.

Headwinds

The Reserve Bank of India (RBI) directed Paytm Payments Bank to stop onboarding new customers in the fourth quarter. The RBI also asked it to appoint an IT audit firm to conduct a comprehensive system audit of its IT system.

“Onboarding of new customers by Paytm Payments Bank Ltd will be subject to specific permission to be granted by RBI after reviewing the report of the IT auditors. This action is based on certain material supervisory concerns observed in the bank,” the RBI said.

Last week, Paytm said it scrapped a deal to acquire Raheja QBE General Insurance after both companies failed to meet the deadline to close the transaction. The company said now intends to seek approvals for a new general insurance license.

Stock movement and outlook

Paytm’s shares have lost 70% of their value since their listing last year. The stock touched a record low of Rs 511 on May 12 but has recovered a little since then.

On Monday, the stock was trading about 7% higher around Rs 615 apiece on the BSE.

Brokerage views have widely divergent views on the Paytm stock. Macquarie is the most bearish and has a target of Rs 450 as it believes profitability is still difficult and that Paytm will need 12 quarters to break even on EBITDA level.

However, Goldman Sachs and ICICI Securities have price targets in a range of Rs 1,070 to Rs 1,300.

Goldman Sachs said in a note that Paytm’s 4Q results showed improving monetization of the payments vertical and that growth momentum for financial services and cloud businesses remain robust. Paytm’s cash burn has also been improving, Goldman said.