Paytm shares drop 3% after Q4 results. Should You buy or sell?

Meanwhile, its from operations in the reporting quarter fell 3% year-on-year (YoY) to Rs 2,267 crore, compared with Rs 2,334 crore in the same quarter of the previous year.

The company's fourth-quarter results were impacted by temporary on account of the UPI transition and permanent disruption because of the Paytm Payments embargo.

Pursuant to the RBI’s actions on Paytm Payments Bank (PPBL), Paytm terminated its nodal accounts being maintained with PPBL. Subsequently, Paytm discontinued all major business activities with and has also made amendments to the shareholders' agreement with PPBL by simplifying the terms while also withdrawing its nominee director from the board of PPBL, stated the company filing to the exchanges.

Considering the future uncertainties associated with the business operations of the payments bank business, Paytm has recorded an provision of Rs 227 crore representing the carrying value of its investment in PPBL as an impairment of investment in its Q4 results.

“We expect near-term financial impact to our revenue and profitability, due to disruptions faced in our business in Q4. This includes steady-state impact due to pausing of the PPBL wallet. We had also paused a few other payments and loan products to our customers during the last quarter, and I am happy to share that many such products have been restarted or in the process of starting soon,” said , founder & MD of .

Should you buy, sell, or hold Paytm's stock? Here's what analysts say:

Bernstein

Global brokerage firm Bernstein believes there are enough data points to suggest that the business is past the bottom in terms of payment volumes and user/merchant traction. “Though from a financial metrics perspective, Q1FY25 is likely to be the bottom as it would reflect the full impact of the lower steady state (vs. 2 months impact in Q4FY24),” said Bernstein in a note.

Bernstein further highlighted that lending volumes have seen a pickup again in March/April.

Macquarie

Macquarie maintained an Underperform rating on Paytm with a target price of Rs 275.

Macquarie noted that Q4FY24 was a tough quarter for Paytm, and the next quarter is expected to be tougher. The brokerage believes that the full impact of RBI regulations will be felt in Q1 FY25.

According to Macquarie, the company needs strong support from the lending ecosystem, and this remains a key monitorable.

Motilal Oswal

Motilal Oswal maintained its Neutral rating on Paytm with a target price of Rs 400.

"We estimate overall disbursements to decline 8% YoY in FY25 as the company follows a distribution-led model and stays away from low-ticket postpaid loans. Merchant and personal loan segments are already seeing a recovery; however, take rates will moderate as the company forgoes collection incentives," it said.

"We cut our earnings estimates and project PAYTM to achieve EBITDA breakeven in FY26. We value PAYTM based on 15x FY28E EBITDA and discount the same to FY26E at a discount rate of ~15%," Motilal said.

JM Financial

Domestic brokerage firm JM Financial maintained its Sell rating on Paytm with a target price of Rs 300.

"Management guided that Q1 will see full impact of RBI embargo with negative adj EBITDA of INR 5-6bn (only last 2 months of Q4 were impacted). We remain watchful of the closure of small ticket post-paid business (which acted as a funnel for high ticket PLs) and pivot towards high ticket lending thereof," said JM Financial.

"Although Paytm has found alternatives for PPBL, we believe on boarding of new customers and revival of high margin products in payments business is contingent on regulatory approvals, seamless migration of accounts and smooth integration. Only regaining MTU (down from 104mn in Jan’24 to 80mn in Apr’24 vs 90mn in Mar’23) will support declining revenue and profitability, which will take time," it said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)