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Motilal Oswal Report
The recent regulatory restrictions have significantly impacted One 97 Communications Ltd.'s business environment and growth outlook. Despite the company's extensive reach, its ability to mitigate the business impact will largely depend on the execution capabilities over the coming quarters.
We anticipate Paytm to experience a decline in market share within the overall payments market. We thus review our numbers and estimate payment processing margin to decline as the mix of high-yielding wallet business drops sharply, while the impact on financial business (loan origination volumes) further suppress revenue growth and profitability.
In terms of loan origination, we anticipate a weaker performance and cut our disbursements by 10%/40% for FY24E/FY25E, due to reputational damage and increased caution among lending partners. However, volumes are likely to recover from FY26E with an estimated growth cagr of ~25%.
We remain watchful on the ongoing business transition and Paytm's ability to recover lost business and resume growth trajectory over FY25-26E.
We thus estimate FY25E revenue to decline by 24%, while contribution profit declines 30%. We estimate contribution margin to sustain at 51% over FY25E (versus 56% in FY24).
We revise our target price to Rs 530 based on 15 times FY28E enterprise value/Ebitda discounted to FY26E.
Our valuation corresponds to 2.8 times price/sales for FY26E. We will revisit our rating post Q4 results and in the interim maintain our Neutral stance on the stock.
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