Paytm will report quarterly earnings on February 4.
“Our analysis suggests Q3 was another quarter of market share gains for Paytm in the payments vertical, a trend we expect to continue. We forecast cash burn for Paytm to marginally improve sequentially, but expect higher reported Ebitda losses on account of increased ESOP expenses,” the brokerage said in a January 30 note.
Goldman Sachs said investor focus will be on translation of Paytm’s robust reported gross merchant value (GMV) growth and disbursals into revenues (monetisation), as well as further clarity on potential MDR regulations, which has been a key overhang on the stock.
“We believe Paytm remains well-positioned to capture share of digital payments in India and view Paytm’s business model as characterised by network effect. However, we note that competitive intensity across most of Paytm’s verticals is quite high, while the regulatory landscape across Paytm’s businesses is also fast evolving,” the brokerage said while remaining neutral on the stock with a revised price target of Rs1,600 from Rs 1,630 earlier.
Paytm reported GMV of Rs 2.5 lakh crore for Q3, which GOldman Sachs suggested was 24.6 per cent share of India’s digital payments, a 800 basis points expansion over the last 12 months.
“However, we estimate the share of UPI in Paytm’s GMV has further gone up to 53 per cent in Q3FY22 against 47 per cent in Q2; we note that UPI GMV does not generate revenues. We have marginally cut our payments revenues for Paytm to account for faster mix shift towards UPI,” it said.
Competitive intensity across Paytm’s verticals is high and, thus, marketing and promotional costs to remain elevated at around 18 per cent of revenues in the December quarter from 17 per cent in Q2.
Due to fixed cost operating leverage, Goldman Sachs expects adjusted Ebitda margin to improve to minus 30 per cent from minus 40 per cent in Q2 or absolute cash burn of Rs 400 crore. Due to higher ESOP charges in Q3, it estimated Paytm’s Ebitda losses to expand to minus 57 per cent.
Goldman Sachs said payments take rate may further decline to 0.35 per cent in Q3 from 0.39 per cent in Q2 as a result of rising UPI mix.
“However, net take rate, or spreads, which is revenue less payment processing charges (PPC) as a proportion of GMV, has improved from minus 30 bps in FY19 to plus 4 bps in Q2FY22 for Paytm; we forecast further improvement to 5 bps in Q3FY22 as we forecast a stable take rate in non-UPI payments, and a rising share of device revenues. Widening of spreads should continue aiding Paytm’s profitability in our view,” Goldman Sachs said.
Growth in financial services is seen at 280 per cent YoY on the back of strong disbursals) while that of commerce is seen at 65 per cent YoY.
“Our payments revenue growth forecast of 64 per cent YoY in Q3FY22 is broadly in line with our estimate of Paytm’s non-UPI GMV growth of 62 per cent YoY. Given continued mix shift towards UPI, we expect payments revenue for Paytm to grow slower vs overall GMV growth,” Goldman Sachs said.
Due to a potential mix shift towards higher commission personal and merchant loans, and expectation of strong traction in Paytm’s wealth segment, the gap between disbursals growth and financial services revenue growth is seen narrowing in the March quarter.
