Motilal Oswal Financial Services has reiterated its “Neutral” rating on One 97 Communications (Paytm) with a target price of Rs 1,300, implying a potential upside of nearly 9% from the current market price of Rs 1,196. The brokerage highlighted Paytm’s robust gross merchandise value (GMV) expansion, improving payment processing margins, and accelerating financial services business as key growth drivers. However, the absence of PIDF incentives and elevated promotional spending weighed on quarterly EBITDA performance. Despite near-term margin pressure, the company continues to move steadily toward sustainable profitability through operating leverage, expanding merchant penetration, and higher monetization from lending and AI-led initiatives.

Paytm Delivers Revenue Beat Despite Margin Headwinds

One 97 Communications posted a stronger-than-expected operational performance in the fourth quarter of FY26, supported by healthy transaction volumes and continued gains in both merchant and consumer payment ecosystems. Revenue from operations rose 18% year-on-year and 3% sequentially to Rs 22.64 billion, marginally ahead of Motilal Oswal’s expectations.

The growth was primarily driven by the payments and financial services segment, which advanced 27% YoY and 8% QoQ. Financial services revenue alone surged 38% YoY, benefiting from strong traction in merchant lending partnerships and increasing adoption of credit-led products.

At the same time, Paytm’s adjusted profit after tax stood at Rs 1.6 billion during the quarter, broadly in line with estimates, reinforcing the company’s transition from a high-growth cash-burning fintech toward a scalable profitability model.

GMV Expansion Signals Strength in Core Payments Franchise

The company’s payment ecosystem continued to scale aggressively, with GMV climbing 27% YoY and 5% sequentially to Rs 6.5 trillion during the quarter. The increase reflects stronger merchant acquisition, rising consumer engagement, and higher adoption of digital transactions across offline and online channels.

Paytm’s monthly transacting users (MTU) rose to 77 million, while registered merchants increased to 49 million. Payment devices deployed, including Soundbox and POS machines, climbed to 15.1 million, indicating continued merchant ecosystem penetration.

The brokerage noted that payment processing margins (PPM) remained above 4 basis points, aided by:

Increased use of credit cards on UPI rails
Better pricing discipline
Expansion in EMI-based payment offerings
Higher mix of MDR-bearing instruments

These structural improvements helped Paytm offset some pressure from the discontinuation of PIDF incentives.

PIDF Incentive Withdrawal Impacts Margins

While revenue growth remained healthy, profitability faced temporary pressure from the absence of PIDF incentives and elevated promotional spending.

Net payment margins contracted 5% sequentially to Rs 5.8 billion, translating into approximately 9 basis points of GMV compared with 10 basis points in the previous quarter.

Contribution margins also weakened:

Contribution margin fell to 55.4%
Down 154 basis points QoQ
Down 72 basis points YoY

The decline was largely attributed to higher cashback incentives and promotional expenditures aimed at customer engagement and merchant retention.

However, management stated that the company has already absorbed nearly 30–40% of the PIDF-related impact and expects further mitigation through operational optimization and revenue diversification.

Operating Leverage Expected to Improve in FY27

Management remains optimistic about margin expansion in FY27 and beyond.

According to the company, indirect costs are expected to grow at a slower pace than revenues, enabling operating leverage benefits. Annual appraisal-related expenses impacted near-term costs, but Paytm expects EBITDA margins in FY27 to improve over FY26 levels.

Motilal Oswal now estimates:

The brokerage also raised its contribution profit assumptions for FY27 and FY28 by nearly 12%, reflecting stronger confidence in revenue scalability and improving operating efficiency.

Lending, AI and Merchant Monetization Become Key Growth Drivers

Paytm’s future growth strategy increasingly revolves around financial services, AI integration, and deeper merchant monetization.

Management highlighted that the payments ecosystem is now functioning as a distribution funnel for:

Merchant lending
Personal loans
Wealth products
Insurance cross-selling
EMI-based financing

Merchant lending penetration has risen to 7% of subscription devices, while higher merchant engagement continues to improve ticket sizes and monetization opportunities.

The company also emphasized incremental investments in artificial intelligence, particularly in:

Merchant experience optimization
Customer retention
Personalized financial recommendations
AI-driven trading strategies via Paytm Money

Management stated that AI-led initiatives are already contributing toward lower churn and better operational efficiency.

Meanwhile, Paytm reiterated its commitment to the wallet business and clarified that the PPBL-related regulatory restrictions have not materially impacted broader operations.

Valuation Outlook and Investment View

Motilal Oswal continues to maintain a cautious but constructive stance on Paytm.

The brokerage values the company at:

22x FY30 estimated EBITDA
Discounted to September 2027 estimates
Equivalent to approximately 7.6x September 2027 sales

Based on these assumptions, the brokerage assigned a target price of Rs 1,300 and retained its “Neutral” rating.

The report acknowledged that Paytm has made significant progress toward sustainable profitability, especially after years of investor skepticism around its business model. However, near-term uncertainties around competitive intensity, promotional spending, and payment-margin normalization continue to cap aggressive upside expectations.

Technical and Financial Snapshot Investors Should Track

Key indicators suggest Paytm is entering a stronger operational cycle.

With improving lending momentum, expanding merchant monetization, and operational discipline gradually strengthening, Paytm appears to be evolving into a more stable fintech platform. Still, investors may remain selective until profitability visibility strengthens further and margin volatility moderates sustainably.

Disclaimer: Investors should conduct their own due diligence and consult certified financial advisers before making investment decisions in equity markets.