Strong Q1 aside, Paytm needs AI revenue to unlock further upside
Paytm posted strong June-quarter results with robust payments growth, higher margins and tighter costs. But sustained stock re-rating will depend on AI monetization, while MDR and wallet licence remain key triggers.
The stock of Paytm’s parent, One 97 Communications Ltd, is down about 4% after reporting strong June-quarter (Q1FY27) results. It could be a case of profit booking after a sharp rally of nearly 18% in July, triggered by rumours of the reintroduction of merchant discount rate (MDR) charges on UPI transactions. So far, the finance ministry has made no official announcement. If implemented, it will be a straight addition to the company’s profit.
Turning to the results, Q1FY27 gross merchandise value (GMV) grew 31% year-on-year (y-o-y) to ₹ 7.1 trillion, up from 27% growth in Q4FY26.
RuPay credit cards could emerge as a key MDR revenue driver for Paytm, as their penetration remains lower than Visa and Mastercard. Income from the distribution of financial services rose 45% to ₹ 814 crore.
Comparable Ebitda (excluding incentives from the RBI’s PIDF in the base quarter) jumped 182% y-o-y to ₹ 203 crore, with margin expanding by 700 bps to 8%.
The most striking aspect of the Q1 results was the 19% y-o-y decline in other indirect expenses to ₹ 167 crore. With a tight leash on costs, the management said there is increasing visibility of achieving its Ebitda margin target of 15-20% over the next couple of years.
While MDR on UPI transactions is uncertain, any announcement around securing a wallet licence would also be viewed positively.
However, significant Ebitda growth, and re-rating of Paytm’s stock, hinges on its ability to generate revenue by selling its in-house developed AI tools to third parties, including merchants and enterprises. Otherwise, its core businesses of payment processing and loan distribution face the risk of intensifying competition, especially from players such as Jio Financial .
Though the management spoke about aggressive plans for Paytm Money, primarily in equity and mutual fund distribution, competition in the segment is already fierce, with Groww , Zerodha and Angel One upping the ante.
Paytm’s valuation appears rich at a price-to-earnings multiple of 45x-46x, based on Nuvama and Motilal Oswal’s FY28 estimates. The brokerages’ target prices imply at least 15% upside from the current market price of around ₹ 1,295.
