Paytm share price: Ebitda positivity in FY26? MOFSL sets target price

Motilal Oswal Financial Services (MOFSL) has maintained its 'Neutral' rating on One 97 Communications (Paytm), following its financial performance for the first quarter of FY26. MOFSL said One 97 Communications (Paytm) reported a net profit of that beat its estimates, highlighting the company's ability to surpass expectations through stringent cost management.

Paytm's higher-than-anticipated profit was largely due to lower expenses related to default loss guarantee (DLG), collections, and employee stock options (ESOP). PAT came in higher than MOFSL estimates, owing to lower expenses related to default loss guarantee (DLG), collections, and ESOP.

MOFSL noted that the reduction in DLG-related costs had a significant impact. "Lower DLG-related costs led to 7 per cent QoQ growth in contribution profit to Rs 1150 crore (up 53 per cent YoY)." This achievement was crucial in improving the company's overall financial health.

MOFSL maintained its contribution profit estimates for Paytm and projected Paytm to turn Ebitda positive by FY26. 

The brokerage has valued Paytm's stock at Rs 1,025, basing this valuation on a multiple of 21 times the estimated Ebitda for FY27. This corresponds to 6.8 times FY27E sales. 

Despite the positive outlook, MOFSL reiterated its 'Neutral' stance.  Paytm reported steady revenue growth, with total revenue remaining flat quarter-on-quarter but showcasing a year-on-year increase of 28 per cent. This stability in earnings has been accompanied by significant gains in gross merchandise value (GMV), which grew 6 per cent QoQ and 27 per cent YoY to Rs 5.4 lakh crore. The company's strategic initiatives in financial services have played a crucial role in this growth, demonstrating the effectiveness of its business model.

MOFSL's analysis underscores that Paytm's strategic focus on financial services and cost management is pivotal for its anticipated profitability. 

"We value Paytm at Rs 1,025 based on 21x FY27E Ebitda, which corresponds to 6.8x FY27E sales. We reiterate our Neutral rating on the stock." The company's cash reserve of Rs 16,100 crore is also noted as a strong buffer for future endeavours, supporting shareholder value. Additionally, the company's efforts in expanding its merchant base and optimizing costs are expected to further enhance its financial performance in the coming years," MOFSL said. 

The focus on refurbishments and soundbox segment retention indicates a commitment to long-term growth and efficiency improvements, which are likely to bolster Paytm's market position. Furthermore, the company’s proactive approach in adapting to market changes and focusing on innovation in its offerings will likely play a significant role in sustaining its competitive edge, MOFSL suggested.