The stock of Paytm, one of the leading digital payments and financial services companies, is up over 2% on the bourses today (June 15, 2022). This is mainly on the back of the company releasing its operating performance update for May 2022.
The company witnessed strong growth in its lending business with 5.5 million loan disbursals during the two months (April and May) of the June quarter of 2022 with a y-o-y growth of 471%. With this, the total loan value for the two months stood at Rs 3,576 crore.
On the user engagement side, the average number of monthly transacting users for the Paytm app stood at 74.3 million, registering a growth of 48% y-oy.
As per media reports, with a growing base of users, Paytm has started charging some of its users a small fee for mobile recharges with the aim of profitability.
Meanwhile, merchant payments volume recorded over 100% y-o-y growth for the two months ending May this year and stood at approximately Rs 1.96 Lakh crore.
Paytm is a digital payments company. Paytm’s IPO is one of the largest the Indian stock markets have witnessed. But the stock had listed at a 9% discount on the NSE and since its listing, the stock is down over 68%.
Paytm currently offers UPI, mobile recharge, DTH recharge, investing in gold, and other financial services. The major source of revenue for the company (nearly 70%) is through the payment business - payments to merchants.
While the company is one of the leading players in the payment services market, the financials are weak. The company's net loss widened in Q4FY22 to Rs 441.8 crore. And as per the company's statement, high processing charges, employee expenses and marketing costs dented the profit.
To know more about the company’s recent March quarter performance, click here
Though Paytm is known for its payment business, it had been expanding its footprint across multiple businesses including consumer lending, co-branded credit card, and wealth management.
Further, the company recently announced plans to invest Rs 950 crore in Paytm General Insurance in 10 years as part of expanding its financial services arm.
Paytm’s target is to be operationally profitable by Sept 2023, as per Vijay Shekhar Sharma, who was re-appointed as MD & CEO till December 18, 2027.
As per media reports, many analysts still find Paytm stock to be expensive in terms of valuation. Further, it is difficult to value a business that is rapidly evolving and expanding and monetising its business is still at a nascent stage.
The competition in the industry where Paytm operates is also high and the switching cost (to consumers is low), making the environment challenging. Competitors like Jio and Amazon Pay come with deep pockets and can get aggressive in market penetration. This along with regulatory uncertainties makes near-term challenging for the company.
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Research Analyst: Bavadharini KS