Paytm Shares Fall 4% Despite Q2 Profit Boost from One-Time Gain; Underlying Loss Concerns Investors
On October 22, shares of Paytm’s parent company, One 97 Communications, dropped by up to 4 percent after the company released its financial results for the second quarter of the fiscal year 2025 (Q2FY25). The company, led by founder and CEO Vijay Shekhar Sharma, reported a net profit of Rs 930 crore for the quarter. This marks a significant improvement compared to the net loss of Rs 290.5 crore it posted during the same period last year. However, the apparent profitability was largely driven by a one-time gain, which tempered investor sentiment.
The substantial gain of Rs 1,345 crore was the result of Paytm’s decision to sell its movie ticketing and events business to Zomato. In a regulatory filing, the company stated, “On August 21, 2024, the Company entered into definitive agreements with Zomato Limited for the sale of its movie ticketing business and events business housed within the Company as well as its two wholly owned subsidiaries for a total consideration of Rs 2,048 crore.” This sale was subject to cash and net-working capital adjustments upon closing.
Excluding this one-time gain, Paytm would have reported a net loss of Rs 415 crore, which is higher than the net loss of Rs 290.5 crore it posted during the same quarter last year. This underlying loss did not sit well with investors, leading to a sell-off in the stock during early trading on October 22.
In terms of revenue, Paytm’s performance showed a decline. The company’s revenue for the second quarter fell 34 percent year-on-year (YoY) to Rs 1,660 crore. However, on a sequential basis, the revenue saw a modest increase from Rs 1,501 crore in the first quarter of FY25 (Q1FY25).
One positive aspect of Paytm’s Q2 results was the improvement in its net payment margin, which increased by 21 percent quarter-on-quarter (QoQ) to Rs 465 crore. This improvement was largely attributed to better payment processing margins, enhanced device realization, and growth in gross merchandise value (GMV). These factors contributed to Paytm’s ability to optimize its core payments business.
Additionally, Paytm’s financial services segment showed strong growth. The company reported revenue of Rs 376 crore from its financial services, a 34 percent QoQ increase. This was primarily driven by an increase in collection bonuses from merchant loans, which benefited from better asset quality trends. Furthermore, Paytm saw a higher share of merchant loans in its overall lending portfolio, which helped boost revenue in this segment.
Despite these positive developments, Paytm’s stock performance lagged behind broader market trends. At 11:06 AM on October 22, Paytm shares were trading 3.5 percent lower at Rs 700.50 on the National Stock Exchange (NSE). So far in 2024, the stock has risen by approximately 8 percent, which is notably lower than the Nifty index’s 14 percent growth over the same period.
Over the past 12 months, Paytm’s stock has faced even greater challenges. The company’s shares have fallen by 24 percent, significantly underperforming the Nifty, which saw a 28 percent rise during the same period. This decline highlights the ongoing challenges faced by Paytm in achieving consistent profitability and maintaining investor confidence.
In conclusion, while Paytm’s Q2FY25 financial results showed a headline net profit of Rs 930 crore, much of this was driven by a one-time gain from the sale of its movie ticketing business. Excluding this gain, the company would have posted a higher-than-expected loss, contributing to the drop in its share price. Although there were positive developments in its payments and financial services businesses, Paytm’s overall performance continues to fall short of market expectations, as reflected in its stock’s recent performance. Investors remain cautious as they await more sustainable growth from the fintech giant.