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Shares of One97 Communications, which operates the Paytm brand, jumped almost five per cent on Monday after analysts turned bullish on the stock as the company’s consolidated loss narrowed down to ₹168 crore in the March quarter.
After hitting an intra-day high of ₹729.35 , the stock closed at ₹723.60 — a gain of 4.95 per cent over the previous day’s close.
The company had posted a loss of ₹761 crore in the same period last year. The consolidated revenues for the quarter grew 51.5 per cent to ₹2,334 crore (₹1,541 crore).
‘Next catalyst’
After reporting unchanged credit metrics for five consecutive quarters, Paytm has, for the first time, reported an improvement in ECL (expected credit losses) in its buy now pay later (BNPL) portfolio and reduction in bounce rates across its BNPL and personal loan portfolio, said Goldman Sachs.
“We believe these results should largely put to rest debates around Paytm’s business model traction and profitability, and we see resolution of outstanding regulatory issues (ban on PPBL and online merchant onboarding) as the next set of catalysts for the stock,” it added.
Also read: Paytm’s loan disbursements grow by 148% in April; number of loans disbursed rises by 56% YoY
Foreign brokerage Citigroup said that Paytm has several growth/profitability tailwinds as digital payments continue to see robust growth; and significant headroom for increase in penetration of lending products to existing consumers.
Key risks
However, YES Securities, which retained its Neutral stance with a target price of ₹750, said that excluding the UPI incentive attributable to nine months, the contribution margin would be 52 per cent. “The contribution margin for third quarter was 51 per cent, which does not contain the UPI incentive, implying flattish margin evolution.”
Similarly, according to Macquarie, many BNPL models have failed across the world including India. “Though Paytm does not carry any balance sheet risk on the loans originated, it carries significant business and reputation risk,” it said. A few months of bad performance could result in lenders withdrawing their credit lines, significantly affecting its ability to grow, it warned.
For the year ended March 31, 2023, One97 Communications reported a loss to ₹1,776 crore against ₹2,396 crore reported in the previous fiscal.
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