One 97 Communication Rating: Purchases – Margins improved in the last quarter

One 97 Communications Ltd (Paytm) reported a combined loss of Rs 760 crore in Q4FY22, slightly less than the `780 crore loss in Q3FY22. The quarterly was characterized by: (1) improved penetration for lending products and improved lending business led by the company’s ‘Now Pay Letter’ (BNPL) product; (2) Increased Contribution / Addition – EBITDA (before ESOP) net payment rate increase, increasing contribution of financial services revenue and margin due to marketing expenses; (3) Increased monthly transaction user (MTU) and sustainable speed in setting up offline devices. Which failed to please: (1) ‘merchant payment service’ and moderate gradual increase in revenue due to reduction in trade revenue; (2) 4% qoq less increase in total merchandise value (GMV) than previously planned.

Management Operating Profit (Positive EBITDA before ESOP Expenditure) is confident for Q2FY24 on improving contribution margins as a percentage of operating revenue and indirect cost reduction. We are conservative and hope the company will be EBITDA-positive in FY25E. Maintain a purchase with an unchanged TP of Rs 1,285 based on the customer’s lifetime value system.

Improved penetration and growth in the lending business: Provides a growing delta in lending revenue through Paytm’s platform. In Q4FY22, it disbursed 6.5 million loans (48% / 371% qoq / yoy more) through the Paytm platform – the equivalent of a distribution value of `35.5 billion (63% / 415% qoq / yoy increase). The company has partnered with 9 banks and NBFC to provide digital lending to MSMEs and small town and city customers in Q4FY22. The total sign up user base for postpaid has now surpassed the 4mn offer. We are predicting a 58% CAGR of financial services revenue for FY22-FY26E, comprising 19% of operating revenue (from <5/10% on FY21 / FY22).

GMV sequential growth is lower than previously planned; However, other key payment operating parameters were encouraging: GMV increased by only 4.0% qoq to Rs 2.6 billion. While this is an increase of 105% per annum, the Merchant Discount Rate (MDR) – GMV from carriers has increased by 52% per annum. Against the risk of onboarding new users with a ban on Paytm Payment Bank, MTU has increased 10/41% qoq / yoy to 70.9mn, which reflects increased user activity on the Paytm platform. As far as offline payment services for merchants are concerned, Paytm is accelerating its footprint with the installation of nearly 2.1 million devices in the last 12 months. We predict that the company’s merchant GMV will grow at 35% CAGR of FY22-FY26E and reach tr 28 trn by FY26E.

34% / 22% / 9% qoq growth in revenue from operations on 3FY22 / Q2FY22 / Q1FY22: Strong 15% qoq growth in ‘consumer payment services’ is partially offset by 2% reduction in revenue Increased by 30% per%. Despite an increase in the UPI (zero MDR) ratio in overall GMV, payment services improved slightly at Q4FY22 at 0.46% (vs. 0.45% at Q3FY22), suggesting a better adoption rate for MDR-carrying devices.

Contribution / EBITDA (before ESOP cost) Margin increased to 35% /
-4% in Q4FY22 such as 31% / – 27% in Q3FY22 and 21% / – 52% in Q4FY21. The payment processing charge was flat quack and the percentage of GMV was 0.3% lower in Q4FY22 (0.31% in Q3FY22). This means qoq improvement in Q3FY22 from 0.16% to 0.16% in net payment acceptance rate. This led to an increase in contribution margins with a 0.8% / 7.1% qoq increase in promotional cashback and incentive costs / other direct costs.

The cost of software, cloud and data center increased by 16% due to the expansion of cloud infrastructure, mainly for increased transactions on the platform, GMV and investment in core licenses to increase customer acquisition and engagement. As a result, the EBITDA (before ESOP spending) margin has increased. This, along with a 9% reduction in ESOP costs, also increased EBITDA margin from -54% to -47% in Q3 of FY22.

We expect EBITDA to continue its upward trajectory and have some visibility to come to positive territory after FY26E. We predict that the adjustment-EBITDA margin (excluding ESOP charges) will be positive within FY25E.

Related Posts

Leave a Reply

Your email address will not be published.