Paytm Q1 preview: Net loss could narrow to Rs 646 cr on solid lending biz

Paytm Q1FY23 results: JPMorgan pegs net loss at Rs 672.3 crore, down from Rs 761 crore QoQ

India's biggest fintech player, One97 Communication-owned Paytm, is set to report its June quarter (Q1FY23) results on Friday, August 5. Analysts expect the company to narrow its net loss on a sequential basis on the back of steady loan disbursements and new device addition.

"With steady loan disbursements and new device addition, we expect Paytm to post healthy sequential growth in revenue. However, RBI's embargo on customer additions for the Payments Bank in March would have its impact," said YES Securities in its earning preview report.

The brokerage pegs consolidated revenue at Rs 1,810.6 crore, up 17.5 per cent QoQ. JPMorgan, however, pegs the same at Rs 1,756.1 crore, up 14 per cent over the March quarter of FY22.

Segment-wise, Paytm said its lending business scaled to 8.5 million total loan disbursals during the quarter ending June 2022, clocking a year-on-year (YoY) growth of 492 per cent. This, the company said, aggregated to a total loan value of Rs 5,554 crore ($703 million), up 779 per cent YoY.

"Our lending business (in partnership with top lenders) continues to witness accelerated growth with disbursements through our platform now an annualised run rate of over Rs 24,000 crore in June. The rapid growth of our lending products brings us an attractive profit pool. We are also seeing increases in average ticket size due to the scale-up of the personal loans business in particular," it said in an exchange filing.

As regards Merchant Payment Volume, the total merchant gross merchandise value (GMV) processed through the platform aggregated to approximately Rs 2.96 trillion ($37 billion), marking a yearly growth of 101 per cent.

Besides, Paytm recorded average monthly transacting users (MTU) for the quarter at 74.8 million, registering a growth of 49 per cent YoY. For the month of June alone, the MTU stood at 75.9 million.

According to Rahul Jain and Pranav Mashruwala of Dolat Capital, Paytm's biggest advantage lies in having no real-world marginal costs attached for most business use cases. It has reduced operating losses by Rs 58 crore over Q2FY22 to Q4FY22.

"In addition, various initiatives, such as the introduction of platform fees on utility payments, scale-led improvement in Payment Processing Charges (1300 basis points savings in FY22), and overall operating leverage, will ensure a timely path to profitability by first half of fiscal 2023-24 (H1FY24)," they said.

They further added that given that operating metrics in Q1FY23 such as GMV/MTU/Devices/Loans were up 101 per cent/49 per cent/301 per cent/779 per cent on YoY basis, Paytm could see sustained high growth momentum with rising contribution profit.

On its part, One97 Communications has prioritised the payments and distribution of lending products businesses and the company aims to achieve operating profitability by the second quarter of FY23 (Q2FY23).

"With increasing GMV and lending business along with some increase in commerce and cloud business, we estimate nearly 16 per cent QoQ operating revenue growth. With management's focus on improving its operating profitability, we expect its some direct, employee and software expenses to decline sequentially which should improve its adjusted Ebitda (Ebitda before ESOPs)," noted ICICI Securities. It pegs ESOP-adjusted Ebitda at Rs 2,936 crore, with revenue from operations at Rs 17,806 crore.

For the quarter under review, YES Securities forecasts an improvement in Payment Processing Charges (PPC) as a proportion of Payments Revenue at 72 per cent, a metric that was 74 per cent in Q4FY22. It arrives at a Total Expenses (ex-PPC) growth of 11 per cent QoQ, compared with 2 per cent in Q4FY22, resulting in an Ebitda margin (ex-Other Income) of minus 39.8 per cent, an improvement of 750 basis points QoQ.

The brokerage forecasts Ebitda and a net loss of Rs 721 crore, and Rs 722 crore, respectively. JPM, meanwhile, pegs the same at Rs 646.5 crore, and Rs 672.3 crore. Paytm’s net loss in Q4FY22 was Rs 761 crore.