One 97 Communications (PAYTM) has received a BUY call from ICICI Securities Limited, based on its robust earnings growth potential driven by anticipated expansion in payments and financial services. The research highlights promising margin improvements, stronger product innovation, and solid market penetration, despite regulatory challenges. The stock is valued with a target price of Rs 1,450, up from Rs 1,240, supported by an expected compound annual growth rate (CAGR) in Gross Merchant Value (GMV) of 23% through FY25-28 and financial service revenue growth of 25.8%. Investors are advised to watch key operational levels and financial metrics for investment decision-making.

ICICI Securities Maintains BUY on PAYTM

ICICI Securities Limited reiterates a BUY recommendation for One 97 Communications (PAYTM), predicting strong earnings growth from payments and loan distribution expansions. The positive stance is supported by improved product offerings, an increasing share of chargeable transactions, and confirmed operational efficiencies. The target price has been revised upward to Rs 1,450 from Rs 1,240, reflecting better earnings outlook and margin enhancements. The firm projects a risk-reward favorable scenario despite existing regulatory concerns that could impact loan growth and earnings multiples.

Strong Operational Metrics and Monetization Focus

PAYTM's monthly transaction users (MTU) climbed 1.4 million quarter-over-quarter to 75 million in Q2FY26 but remain below the peak of 100 million. Management prioritizes monetizing higher quality retained customers rather than aggressive user expansion. GMV increased 5.6% QoQ and 27.5% YoY, while merchant devices reached a record 13.7 million. The company continues cost-optimization efforts by recycling old devices, reflected in reduced capital expenditure—Rs 3.17 billion in FY25 to Rs 2 billion in H1FY26 against much higher spends earlier.

Financial Services Drive Revenue Growth

Financial services revenue surged 62.5% YoY to Rs 6.11 billion in Q2FY26, bolstered by increased merchant loans and better collection performance. Repeat borrowers constitute over 50% of loans, indicating a strong product-market fit and customer loyalty. The newly relaunched postpaid product, offering up to 30 days short-term credit backed by UPI, is in early rollout stages with limited bank partnerships. PAYTM is also enhancing equity broking and mutual fund distributions, contributing to diversified revenue streams within financial services.

Margins and Profitability on an Uptrend

PAYTM’s payment margin improved structurally, with net payment margin increasing to 10.4 basis points in Q2FY26 from 9.8 basis points in the previous quarter. Gross payments revenue grew 10% QoQ to Rs 11.5 billion while net payment revenue (excluding subscription and incentives) expanded 26.4% QoQ. Contribution margin held steady at 58.5%. Fixed costs, including ESOP expenses, decreased by 17.9% YoY, driven by operational efficiencies and AI-driven cost optimization. Reported EBITDA (including ESOPs) improved to Rs 1.41 billion and adjusted PAT rose to Rs 2.11 billion in Q2FY26.

Valuation and Investment Levels

The stock is currently trading at a market capitalization of Rs 806 billion. ICICI Securities evaluates PAYTM at a 40x multiple on FY28E EBITDA of Rs 21.5 billion, adding Rs 130 billion in cash, to justify the revised target price of Rs 1,450. Key price levels for traders are:

• Current Market Price (CMP): Rs 1,261
• Support Level: Rs 1,240
• Target Price: Rs 1,450

Investors should watch out for the sustainability of GMV growth, financial services revenue expansion, and margin improvement as critical indicators of the stock’s upward trajectory.

Risks to Monitor

The primary risks identified are slower-than-expected GMV and financial services growth relative to the factored-in CAGR, and persistent regulatory challenges that could impair loan growth and affect valuations. Market volatility and competition within the payments ecosystem may also exert pressure on margins and faster monetization plans.

Financial Highlights - FY25 to FY28E

Bottomline for Investors

ICICI Securities’ research suggests PAYTM offers attractive growth potential in India’s digital payments and financial services landscape. The stock, currently valued at Rs 1,261, is recommended as a BUY with an upside to Rs 1,450 given its strong revenue trajectory, improving margins, and structural levers supporting earnings resumption. Investors should closely monitor GMV expansion and regulatory developments. The stock's risk-reward profile appears favorable in the medium term, making it a compelling investment option for those seeking exposure to fintech innovation and digital payments growth.