Paytms Distribution-Only Loans Model Divides Analysts

One97 Communications Ltd., the owner and operator of payments firm Paytm, received mixed views from analysts on the impact of its distribution-only loans model. Post earning brokerage comments said the digital payments platform will face significant business disruption in fiscal 2025, but the renewed focus on business growth would help in its revival.

"...focus on marketing efficiencies and new distribution-monetized revenue streams are steps in the right direction to reduce regulatory risks in the business and generate profits...," Citi said in a note.

However, Bernstein said a permanent shift to distribution-only loans would create "a much weaker model", as Paytm will be more of a loan distribution agent than a partner that adds more value as loan service provider.

Emkay said lower loan disbursements and moderation in lending rates may disrupt the company's strategy of monetising payment business.

Paytm's net loss widened sequentially to Rs 551 crore in the fourth quarter ended March 2024. Even its revenue fell 20.5% quarter-on-quarter to Rs 2,267 crore. The contribution margin was 57%, including UPI incentives.

The Ebitda loss for the quarter stood at Rs 223 crore, compared to Rs 157 crore in the previous quarter. The Ebitda before ESOP for the company stood at Rs 103 crore, including UPI incentives.

Owing to the Reserve Bank of India's clampdown on Paytm Payments Bank, the company also wrote down the value of its entire investment in the bank, worth Rs 227 crore. It also guided towards a full financial impact in Q1 FY25.

Emkay said lower loan disbursements and moderation in lending rates may disrupt the company's strategy of monetising payment business.

The Ebitda loss for the quarter stood at Rs 223 crore, compared to Rs 157 crore in the previous quarter. The Ebitda before ESOP for the company stood at Rs 103 crore, including UPI incentives.

Also Read: Paytm CFO Predicts Rapid Profitability Recovery Despite Early FY25 Challenges

Here is what analysts said about Paytm Q4 results:

Bernstein

In terms of payment volumes and user-merchant traction, the business is past the bottom.
The first quarter of fiscal 2025 is likely to be at the bottom, as it would reflect the full impact of the Reserve Bank of India's clampdown on Paytm Payments Bank.
Total loans disbursed down more than 60% QoQ, with the full impact of postpaid loan shutdown visible.
In April, merchant loans showed early signs of an uptick.
A combination of payment GMV dropping by about 20% and payment processing margin expectation dropping to 5–6 basis points translates to a near 50% blow to the payment margins.
If distribution-only loans become a permanent switch, it would create a much weaker model.
Maintain 'outperform' with a target price of Rs 600 apiece.

Citi

Management guidance on net payment margins, lending take-rates, and cost structure initiatives improves visibility on the trajectory ahead.
Paytm's approach to only doing distribution business eliminates collection incentives in the back-book.
Expect payments and GMV in the first quarter of fiscal 2025 to be 30% below the third quarter of fiscal 2024 levels.
The company anticipates a decline in contribution profit of 26% and 17% in fiscal 2025 and 2026, respectively, as a result of reduced net-payment margins, partially counterbalanced by increased cost efficiencies.
Lowering FY25–26 estimates but raising multiples to 24 times, compared with 16 times earlier.
Maintain a 'sell' with a target price of Rs 360 apiece.

Emkay Global

Bunched-up UPI incentives and lower operational burn led to a positive Ebitda before ESOP of Rs 100 crore.
Expect Paytm to turn net profit only by FY29 after factoring in business slowdown, lower take rates in payments and lending business, and higher operational burn.
Don't anticipate the company's plans to expand its partner and product portfolios to be easy, as it is battling with higher people-attrition
Lower loan disbursements and moderation in lending rates may disrupt the company's strategy of monetising payment business.
Maintain 'reduce' with a target price of Rs 300 apiece.

Dolat Analysis And Research Themes

Renewed focus on business growth and cost efficiency signals the right direction for revival.
Slash FY25-26 revenue estimates by 8% and 7%, respectively, and expect profitability goals to be delayed further.
Revenue guidance of Rs 15–16 billion and adjusted Ebitda loss of Rs 500-600 crore is weak, considering Paytm’s transition to partner banks is now complete.
Additions to the sales force for merchant outreach and device version launch to aid recovery
Expect business to turn PAT profitable in FY26 and reach a steady state EBIT margin of approx. 11.6% over FY31–40.
Maintain 'buy' with a target price of Rs 650 apiece.

Paytm shares fell as much as 2.67% to Rs 359 apiece, the lowest level since May 22. It pared gains to trade 2.45% lower at Rs 359.70 apiece, as of 10:10 a.m. This compares to a 0.29% advance in the NSE Nifty 50 Index.

It has fallen 43.38% on a year-to-date basis and 337.75% in the last twelve months. Total traded volume so far in the day stood at 0.27 times its 30-day average. The relative strength index was at 48.52.

Out of the 17 analysts tracking the company, five maintain a 'buy' rating, five recommend a 'hold,' and seven suggest 'sell,' according to Bloomberg data. The average 12-month consensus price target implies an upside of 14.6%.