One 97 Communications, the parent company of Paytm, is facing significant financial turbulence, as evidenced by a more than 40% decline in its share price since the end of January. This dramatic drop follows actions taken by the Reserve Bank of India (RBI) against Paytm’s payment bank, which have rippled through the company’s operations and financial outlook.
According to projections by Yes Securities, Paytm is set to report a notable decline in revenues for the quarter ending June 2024. The overall revenue from operations is expected to decrease by 32% sequentially. This anticipated drop is largely attributed to declines across Paytm’s major segments, including payment services to consumers, payment services to merchants, and financial services.
Yes Securities has forecasted a 40% sequential de-growth in payment services to consumers, a 35% sequential de-growth in payment services to merchants, and a 30% sequential de-growth in financial services and other segments. This comprehensive decline paints a bleak picture for Paytm’s immediate financial health and raises questions about its future performance.
The impact of these declines extends beyond simple revenue loss. Payment Processing Charges (PPC) revenues are expected to comprise 55.5% of payments, compared to 46% in the previous quarter. This increase is primarily due to a UPI incentive received in Q4FY24. Meanwhile, total expenses, excluding PPC, are anticipated to rise by 7% sequentially. This represents an improvement over a 12% de-growth in Q4FY24, but it also indicates rising costs at a time when revenues are falling.
When adjusted for the cost of Employee Stock Ownership Plans (ESOP) and other expenses, Yes Securities predicts a decline in the Ebitda margin by 5,050 basis points to 60.4%. This substantial reduction further underscores the financial strain that Paytm is currently experiencing.
Adding to the grim outlook, Motilal Oswal Financial Services expects Paytm’s revenue from operations to decrease by 36% year-over-year to approximately ₹1,490 Crore in Q1FY25. The contribution profit is also projected to decline by 51% YoY to around ₹640 Crore. Gross Merchandise Value is estimated to drop by 7% YoY, amounting to ₹4.3 trillion.
The contribution margin is pegged at 43%, reflecting a significant reduction in profitability. Furthermore, the adjusted operating loss is expected to be around ₹490 Crore in Q1FY25. Despite these challenges, Motilal Oswal has maintained a Neutral rating on the stock, suggesting that while the situation is dire, there may be potential for stabilization or recovery.
Despite the bleak financial forecasts, some analysts see potential for a turnaround. StoxBox, for instance, remains optimistic about Paytm’s prospects. The stock is currently trading at ₹434, and StoxBox has set a target price of ₹449 with a stop loss of ₹398. They highlight Paytm’s large and engaged customer base as a key strength and expect the company to achieve EBITDA breakeven by FY25. Additionally, StoxBox has observed potential trend reversal patterns on technical charts, suggesting that the stock may be poised for a rebound.
This analysis underscores the dichotomy in Paytm’s current situation. On one hand, the company is grappling with severe revenue declines and rising expenses, leading to significant financial strain. On the other hand, its substantial customer base and potential for trend reversals offer a glimmer of hope for the future.
Investors and stakeholders will be closely monitoring Paytm’s performance in the coming quarters. The company’s ability to navigate these challenges and stabilize its financial health will be crucial in determining its long-term viability. As Paytm works towards EBITDA breakeven and potential recovery, the actions it takes in response to these financial challenges will be critical.