Paytm shares rise 3% on Q1 profit beat, bonus issue cancelled
Paytm's shares gained 3% after a stronger-than-expected first quarter drove analyst price target upgrades, even as the fintech firm abandoned plans for its first-ever bonus share issue.
One 97 Communications, the parent of the fintech platform Paytm, reported a sharp increase in profitability for the April-June quarter, sending its shares up 3%. Profit before tax rose to Rs 247 crore, a significant improvement from Rs 143 crore a year earlier and Rs 173 crore in the prior quarter.
Operating revenue grew 28% year-on-year to Rs 2,448 crore, up from Rs 1,918 crore, while total income reached Rs 2,630 crore. Sequentially, revenue increased 8% from Rs 2,264 crore in the March quarter. The bottom-line improvement was driven by an expansion in EBITDA margins to 8.3%, up from 5.8% in the preceding quarter.
The results prompted major brokerages to increase their valuations. Citi maintained its Buy rating and raised its target price to Rs 1,560 from Rs 1,425, noting that Q1 EBITDA exceeded its estimates by 16%. The firm attributed the outperformance to reduced cloud costs and higher merchant loan distribution, lifting its FY27 and FY28 EBITDA estimates by 2% and 6% respectively.
Citi retains a valuation multiple of 60x March 2028 estimated EV/EBIT. Goldman Sachs similarly reiterated its Buy rating, lifting its target to Rs 1,500 from Rs 1,430. The brokerage highlighted the combination of accelerating 28% revenue growth and expanding margins as clear evidence of improving operational execution.
Despite the positive earnings, the company unexpectedly shelved a proposed maiden bonus share issue. Directors discussed the plan at a July 20 board meeting but decided not to proceed "at this time". Management instead chose to prioritise business expansion and profitability to enhance long-term shareholder value.
The decision to retain capital underscores a focus on sustaining financial momentum rather than issuing near-term shareholder rewards. The company had initially informed stock exchanges on July 15 that it would consider a bonus issue alongside its quarterly results. If approved, it would have marked the firm's first bonus issue since its November 2021 listing.
For market participants, the stock's immediate gain signals that investors are primarily rewarding operational progress over capital return initiatives. Citi added that any future implementation of UPI merchant discount rates could provide further upside to its newly upgraded forecasts. This potential regulatory change remains a key catalyst for the stock moving forward.
