Paytm stock gains after management strong commentary on growth, profitability

The fintech major, whose share have registered the worst decline for any major initial public offering in the past decade, also told analysts that it plans to start generating free cash flow over the next 12-18 months.

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Shares of One 97 Communications, the operator of Paytm, inched higher on December 2 after the company sounded optimistic on its growth prospects and reasserted its guidance on turning profitable at an operating level next year.

“Management stated that the journey to attain operating profitability (EBITDA before ESOP cost) via consistent margin improvement has exceeded its expectations in the past few quarters,” ICICI Securities, which attended the company’s analyst day meet, said in a note.

At 10:30am, the scrip was trading 3.78 percent higher at Rs 520.45 apiece, while the benchmark Sensex was at 62,898.75, down 385.44 points or 0.61 percent.

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Paytm, earlier this year, had guided that it will register operating profits after adjusting for employee stock options related costs by the September quarter of the next financial year.

The fintech major, whose share have registered the worst decline for any major initial public offering in the past decade, also told analysts that it plans to start generating free cash flow over the next 12-18 months.

Brokerage firm CLSA, which recently upgraded the stock to ‘buy’ from ‘sell’, said that guidance on free cash flow was in-line with its view that the company’s cash burn will likely end over the next 4-6 quarters.

Brokerage firm Morgan Stanley said that the management sounded confident of strong growth continuing for the company and that they don’t see significant risks to their payments business margins.

Paytm has seen strong growth in its financial services division over the past few quarters with loans disbursed through its platform rising 482 percent on-year to Rs 7,313 crore. Similarly, average loan size has also risen 80 percent on-year to Rs 7,955 per loan over the past 12 months, the company’s investor presentation showed.

The company’s management told analysts that it expects margins of lending business to trend higher as the business picks up scale going ahead.

Analysts recently have also pointed out that the consolidation in the buy-now-pay-later business with PhonePe’s acquisition of Zestmoney could be positive for listed players like Paytm.

“We believe that Paytm could be beneficiary of potential consolidation, as it could it fortify its position. We note that Paytm does not do FLDG, does not lend on its balance sheet and has lower delinquencies,” brokerage firm BofA Securities said in a note.

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