Paytm's profitability path mirrors Zomato and PB Fintech, says Motilal Oswal
The brokerage sees Paytm advancing steadily toward an inflexion point, driven by disciplined execution, a sharp focus on financial services, and robust growth in core business metrics.
Motilal Oswal notes that Paytm's profitability trajectory closely resembles that of other new-age tech firms such as Zomato and PB Fintech. As these companies transitioned to profitability, their stocks saw substantial re-rating -- Zomato delivered 245 per cent returns and PB Fintech 156 per cent over the past two years. While Paytm has lagged in performance so far, the report suggests that with contribution margins projected to cross 55 per cent and adjusted EBITDA turning positive in FY26, the company may be on a similar upward path.
Paytm has demonstrated resilience despite facing regulatory headwinds and market volatility in FY24 and early FY25. Its ability to sustain growth in merchant acquisition, lending partnerships, and user engagement has set the foundation for long-term profitability. The brokerage estimates that Paytm could post a profit after tax of Rs 16.2 billion in FY28.
One of the key drivers is Paytm's strategic pivot toward financial services, projected to contribute 27 per cent of total revenue by FY28, up from 25 per cent in FY24. Lending is scaling rapidly through the FLDG (First Loss Default Guarantee) model, supported by over 18 partners. Disbursements are expected to grow at a 35 per cent CAGR, while GMV is projected to expand at 23 per cent CAGR from FY25 to FY28.Operationally, the company is benefiting from AI-led cost efficiencies, rationalised marketing spends, and disciplined execution. These efforts are expected to expand contribution margins to 58 per cent by FY28.
The report adds that despite the absence of MDR on UPI and a sharp drop in UPI incentives (Rs 2.9 billion in FY24 to Rs 700 million now), Paytm is scaling sustainably through its dual-core strategy of payments and financial services.
The company continues to deepen its merchant ecosystem, with 44 million merchants onboarded and 12.4 million devices deployed as of Q4 FY25 -- a 16 per cent year-on-year growth. Enhanced monetisation through subscriptions and merchant lending, especially among high-GMV partners, is further strengthening the revenue model.
Motilal Oswal has revised its target price for Paytm to Rs 1,000, valuing the company at 20x FY27E EBITDA. While maintaining a Neutral rating due to regulatory uncertainties and UPI market share dynamics, the brokerage underlines that Paytm's Rs 156 billion cash reserves, improving financial mix, and clear glide path to profitability make it one of the best-positioned new-age platforms for potential re-rating. (ANI)
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