Shares of the fintech major Paytm witnessed a 2% rise on the BSE on Tuesday, reaching Rs 1,686, following the company's disclosure of robust financial results for the second quarter. The company reported a consolidated net profit of Rs 226 crore, marking a 976% increase compared to the Rs 21 crore profit recorded in the corresponding quarter of the previous year. Revenue from operations also saw a healthy ascent, climbing 28% year-on-year to Rs 2,648 crore.
The sharp rise in reported profitability was partially attributed to a significant reduction in exceptional charges, which stood at Rs 4 crore for the September quarter, down from Rs 190 crore in the year-ago period. When excluding these exceptional items, the company’s profit grew by 9% to Rs 229 crore. On a sequential basis, the net profit showed a modest 3% increase from the Rs 220 crore reported in the preceding June quarter.
Market analysts and brokerage firms have responded to these results with continued optimism. Jefferies has maintained a 'Buy' rating on the stock with a target price of Rs 2,150, suggesting a potential 33% upside. The brokerage noted that Paytm continues to deliver strong growth, driven by an expansion in financial services revenue and enhanced operating efficiency. Jefferies anticipates the company will maintain a 25% compound annual growth rate (CAGR) in the coming period.
A significant highlight for investors is the expected implementation of UPI merchant discount rate (MDR) charges following Diwali. Paytm management estimates that this move will generate revenue equivalent to 2.5 basis points of gross merchandise value (GMV), providing a fresh revenue stream to support future expansion. This anticipated benefit was also quantified by Goldman Sachs, which estimates the change could contribute Rs 8-9 billion in EBITDA by fiscal year 2028.
Despite maintaining a 'Buy' rating, Goldman Sachs adjusted its target price for the stock to Rs 2,010 from Rs 2,070. The brokerage cited higher-than-expected capital expenditure related to device deployment, which is likely to increase future depreciation and amortisation costs. While the firm remains positive on the company’s margin expansion and financial services momentum, these cost factors prompted a downward revision in earnings per share estimates.
Meanwhile, Citi took a more bullish stance, raising its target price for Paytm shares to Rs 1,940 from the previous Rs 1,560. The brokerage reported that Paytm’s second-quarter EBITDA and EBIT figures exceeded their estimates by 4% and 1%, respectively. Citi also observed that the company’s financial services revenue grew by 49% year-on-year, outpacing their 44% estimate, and highlighted that net payment margins are improving even without factoring in the potential gains from UPI MDR.
Looking ahead, the company continues to invest heavily in its technological infrastructure, including artificial intelligence, alongside marketing and distribution efforts. These initiatives are focused on increasing the number of monthly transacting users and expanding the on-ground sales force, which saw a 19% increase quarter-on-quarter. As the market digests these developments, analysts believe the increased disclosure regarding UPI MDR revenue potential will provide greater clarity on the firm's long-term incremental EBITDA opportunities.
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