Paytm's GMV growth and financial services drive improving profitability outlook

Investment View and Valuation

Motilal Oswal Financial Services retains a Neutral rating on One 97 Communications (PAYTM) with a target price of Rs 1,475 per share. The broker considers the June 2026 quarter strong, led by healthy gross merchandise value growth, payment-market-share gains and sustained progress towards profitability. However, the Neutral stance reflects the broker's valuation framework despite the improved operating outlook.

Q1 FY27 Financial Performance

PAYTM reported revenue from operations of Rs 2,450 crore in Q1 FY27, up 28 per cent year-on-year and 8 per cent quarter-on-quarter, broadly in line with MOFSL's estimate. Reported profit after tax was Rs 220 crore, ahead of the broker's estimate of Rs 190 crore.

Payments and GMV Growth

PAYTM's gross merchandise value reached Rs 7.1 lakh crore in Q1 FY27, rising 31 per cent year-on-year and 9 per cent quarter-on-quarter. MOFSL attributes the growth to offline market-share gains and tailwinds in online payments following the receipt of the online payment-aggregator licence in the previous year.

• Registered merchants rose 11 per cent year-on-year to 5 crore.
• Payment devices increased 21 per cent year-on-year to 1.57 crore.
• Net payment margin increased 13 per cent year-on-year and 3 per cent quarter-on-quarter to Rs 600 crore.
• Net payment margin declined to 8 basis points of GMV from 9 basis points in Q4 FY26 and 10 basis points in Q3 FY26, as payment-processing charges grew faster.
• Payment processing margin improved to 4 basis points from 3 basis points, aided by a richer mix of merchant-discount-rate-bearing products, including credit cards on UPI and EMI transactions.

Profitability and Operating Leverage

Contribution margin was broadly stable at 55.1 per cent, in line with MOFSL's estimate of 55 per cent. Promotional cashback and incentives affected the margin, while direct expenses rose with payment-processing costs.

EBITDA margin improved to 8.3 per cent from 5.8 per cent in Q4 FY26, supported by indirect expenses falling 9 per cent year-on-year and 2 per cent quarter-on-quarter. MOFSL sees operating leverage gaining momentum. Promotional and cashback incentives and the higher processing-cost mix remain pressures on contribution margin, although higher-yield payment products are improving monetisation.

Management Outlook

Management expects GMV growth to remain sustainable, supported by offline merchant digitisation, online-payment growth and an expanding consumer base. It expects FY27 revenue growth to exceed the 22 per cent achieved in FY26, with indirect expenses growing slower than revenue.

Management expects personal-loan disbursements to remain strong as lending partners regain confidence in unsecured lending, using PAYTM's asset-light distribution model. PAYTM also expects margin improvement towards 15 per cent over the next two to three years through financial-services penetration, operating leverage, lower indirect expenses and AI-led efficiencies.

Management said internally developed AI products are generating initial revenue and may be commercialised for merchants and enterprises over coming quarters.

MOFSL Estimates

MOFSL raised its FY27E and FY28E contribution-profit estimates by 4 per cent and 6 per cent, respectively, on stronger payments and financial-services traction. Its revised forecasts are as follows:

Target Price Methodology

The target price of Rs 1,475 per share is based on 20 times FY32E profit after tax, discounted back to FY28E.