Paytm Q4FY23 Preview: Goldman Sachs Sees Second Consecutive Quarter Of Profitability

Paytm is expected to report robust Q4FY23 earnings, Goldman Sachs said in a report on Friday, adding that it expects Paytm to be the most profitable company within their India Internet coverage starting FY25E.

It expects Paytm to report revenue growth of 49 per cent (year-on-year) YoY resulting in a second consecutive quarter of positive earnings with a forecasted 10 per cent adjusted EBITDA margin.

It sees a 32 per cent YoY growth in Payments and 207 per cent YoY growth in financial services.

On what would be investor focus this quarter, it said, they will watch out for the rate of improvement in Paytm’s profitability and sustainability of credit quality metrics for its lending portfolio.

Paytm saw a 26 per cent quarter-on-quarter (QoQ) growth in loan disbursals in the fourth quarter of FY23 at Rs 12,600 crore. The average ticket size of loans saw an approximate 11 per cent QoQ growth in the quarter under review to Rs 10,500.

“This indicates increasing ticket size of post-paid by consumers, and mix shift towards higher commission personal and merchant loans,” Goldman Sachs said.

The report said that while it foresees Paytm’s lending growth to be elevated, tightening macro conditions and a high base may drive a deceleration in Paytm’s loan growth to 73 per cent YoY in FY24E vs 364 per cent YoY in FY23E.

Paytm’s Monthly Transacting Users (MTUs) continue to be strong, rising by 50 lakh QoQ in Q4FY23.

“We believe Paytm’s margin print in 4Q will help further increase the Street’s confidence around the increasing traction of Paytm’s business model and the company’s ability to be profitable on a sustained basis,” said Goldman Sachs.

“Any near-term resolution of customer onboarding ban on Paytm Payment Bank (PPBL) could be another meaningful catalyst for Paytm in our view,” it added.

Goldman Sachs noted that Paytm’s business model of acquiring customers through payments and monetising them through lending, commerce and cloud has continued to show strong traction, with revenue growing 60 per cent YoY in FY23E and adjusted EBITDA margin improving from -31 per cent in FY22 to -2 per cent in FY23E.

With our expectation of share of financial services in Paytm’s revenues further rising to 30 per cent in FY25E (vs 20 per cent in FY23), we forecast EBITDA margin to improve to 13 per cent in FY25E, or around USD 190 million in EBITDA, the highest within our India internet coverage, it added.

Goldman Sachs added that we see the improving profitability as a meaningful catalyst for the stock and expect Paytm to be net income profitable in FY25E.

The firm has given a ‘Buy’ rating on Paytm (on CL) with an unchanged 12m SOTP/DCF-based target price of Rs 1,150, implying a 78 per cent potential upside.