New Delhi: Investment research firm Macquarie, which has been taking a grim view of Paytm’s performance since the firm’s public listing, has considerably made a shift from its earlier stance. It has raised Paytm’s target price to Rs 730 from Rs 325, published in the report ‘Strong beat on all fronts’. This came shortly after Paytm beat all estimates with an impressive Q3.
The company has reported an operating revenue of Rs 1,828 Cr for Q3 FY25, marking a 10 per cent sequential growth. This growth was driven by increase in GMV, healthy growth in subscription revenues and increase in revenues from distribution of financial services. Profit After Tax (PAT) improved significantly by Rs 208 Cr QoQ to Rs (208) Cr, reflecting consistent progress toward profitability. EBITDA before ESOP costs improved significantly by Rs 145 Cr quarter-on-quarter (QoQ), narrowing to Rs (41) Cr.
The Backstory
Macquarie had correctly projected Paytm’s initial price predictions. However, a deeper look into his analysis over time shows that the firm’s revenue and loss estimates have been off the mark since IPO. It is pertinent to note that the prices of global fintechs had dropped by 60-80 per cent from their peak in 2021 by mid-2022. At the time of initiation, Macquarie had stated that the payment revenue CAGR would not be higher than 4 per cent between FY21-26, with FY24 payment revenue forecasted at Rs 22bn.
As compared to this prediction, the company has significantly over-achieved and delivered a CAGR of 33 per cent during FY21-24; FY24 actual payment revenue reported was Rs 62bn. In February last year, the brokerage firm had released a scathing report titled ‘Paytm fighting for survival’, questioning if it’s the end of the road for Paytm. In fact, the report in February was published post RBI monetary policy where it was clarified that they will be coming out with FAQ in a week’s time. In this report, it had projected FY25 revenue of INR 42.2bn which has now (in his recent report) been increased to INR66.8bn!
As Q3FY25 results announced on Jan 20, 2025 show, the company reported 9M revenue of INR 49.9bn, which is 18 per cent higher than the initial assumption for the full FY25 revenue mentioned in the brokerage report.
How Paytm managed to revive itself
The FY25 loss estimates by Macquarie, Rs 34.2bn, are significantly higher than the 9M FY25 PAT at Rs 1.2bn. The sharp reduction in losses by the company has been achieved through merchant retention, continued product innovation, strong business growth and reduction of both direct and indirect costs by leveraging AI capabilities. The company took some strategic decisions to focus on the core business of payments and FS, and accordingly the company sold the entertainment business to Zomato for Rs 2,048 Cr and sold a stake in PayPay Japan for Rs 2,372 Cr.
But what’s interesting is after the hullabaloo around Paytm’s price since its listing, Macquarie has upped the company’s target price now, albeit silently, snuck away in an overall financial sector report published on Jan 10.
In the January report, their analyst words show that his earlier research may have been off the mark. Macquarie said, “We decrease our losses by 57%/24% in FY25F/FY26F primarily driven by increase in payment revenues and some increase in distribution revenues. Impact of customer exodus post the regulatory embargo has been lower than expected. There is some sign of profitability in FY27F.”
In its most recent report, the firm admitted that Paytm continues to beat estimates, “Losses for Paytm declined to Rs2.1bn in 3Q25 from Rs4.1bn (adjusted for one-off gain) in 2Q. This was a significant beat to our estimate due to higher revenue (up 10% q-q) from payment (5% beat) and distribution business (39% beat) given the consistent improvement in MTUs (72mn in Dec-24 vs 68mn in Sep-24), merchant subscription (up 4% q-q) and distribution take rates (9% vs 7.1% in 2Q).”
Paytm has been able to achieve consistent revenue growth in this year. After the Reserve Bank of India (RBI) imposed restrictions on Paytm Payments Bank, it shifted its UPI services to a network of multiple banking partners in a quick period of time. This strategic move has diversified its operations, mitigated risks, and unlocked new opportunities for monetization. Macquarie expected this to be a tall task as mentioned in their February 2024 report.
The firm had earlier believed that in order to normalise its business, a 50 per cent cash burn (~4,200 Cr) would happen, based on the company’s cash balance of 8,439 Cr in Dec 2023. Macquarie’s bull case scenario was 25 per cent cash burn (~2,100 Cr). But in reality, Paytm has been able to increase its cash balance. At the end of Q3FY25, Paytm’s cash balance stood at an impressive Rs 12,850 Cr as against cash balance of Rs 8,439 Cr in Dec 2023.
A resilient Paytm will continue to grow
Macquarie had earlier estimated that Paytm “faces a serious risk of customer exodus”. However, brand Paytm continues to stay strong. The company has received NPCI approval to onboard new UPI users in October 2024, and on the merchant side, its merchant subscriber base for devices had already reached 1.17 Cr as of Dec 2024, up from 1.06 Cr in Dec last year.
Over the last quarters, it has been observed that the brokerage firm has been correcting their own stance on the company. In the report from October, their analyst had written, “Paytm reported 2Q FY25 PAT of Rs9.3bn, including a one-off gain of Rs13.5bn on the sale of its movie-ticketing business. However, the EBITDA loss of Rs40bn was lower than our 71bn loss estimate, driven by higher distribution revenue (up 34% QoQ) and lower employee costs (down 13% QoQ vs our expectation for a 10% QoQ increase).”
In the latest Macquarie report, the firm has finally increased Paytm’s target price. It says, “Our TP increase is large as we 1) roll forward to FY27F 2) increase distribution business multiple to 30x from 20x earlier 3) factor in the monetisation of entertainment and PayPay stake sale 4) factor in the revised cash balance (as on 1H25) without any cash burn.” Despite this, the current report continues to see significant deviation from the Visible Alpha EPS estimates for FY25, the largest amongst all other banks, NBFCs and Fintechs covered by it.
After its Q3 results, global research firm Morgan Stanley said, “3QF25 showed multiple positives; a) strong growth in revenues, b) material cost control, c) NPCI approval to onboard new customers.”
Similar sentiment was echoed by several brokerage firms including JM Financial, Bernstein, Citi, Motilal Oswal, Dolat Capital, ICICI Securities, Mirae Asset Capital and Emkay, who have reiterated their positive outlook on Paytm following its strong December quarter earnings (Q3FY25) citing strong cost control, regulatory developments, and potential for long-term growth.
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