Paytm’s focus on its merchant business, tighter cost controls and improving operating performance has helped the fintech company achieve EBIT breakeven, according to global brokerage JP Morgan. In its latest report, titled First Take: All-round beat, the brokerage maintained its Overweight rating on Paytm, with a price target of Rs 2,100.
JP Morgan said Paytm’s performance demonstrates the strength of its merchant-led business model, particularly following the resolution of regulatory restrictions. The brokerage believes that the company’s focus on merchants and disciplined spending has supported growth and improved profitability, even without a sharp recovery in its consumer business.
Paytm Reports Broad-Based Revenue Growth in Q2 FY27
Paytm’s second-quarter FY27 results exceeded JP Morgan’s expectations for both revenue and margins.
The company’s revenue grew 28% year-on-year, rising to 33% after excluding incentives under the Payments Infrastructure Development Fund (PIDF).
Growth was spread across its major business segments. Financial services led the expansion with 49% growth, followed by marketing services at 26% and payments at 25%.
JP Morgan said this broad-based performance reflects the contribution of Paytm’s merchant ecosystem and its financial services business to overall growth.
Consumer Engagement and Merchant Network Expand
The brokerage also highlighted improving consumer activity and continued expansion of Paytm’s merchant network.
Monthly transacting users increased 13% year-on-year. This was higher than the average growth of 8% recorded over the preceding three quarters, indicating an improvement in consumer engagement.
Merchant device deployments grew 19% year-on-year, further strengthening the company’s payments infrastructure and its relationships with merchants.
According to JP Morgan, the growth in merchant deployments reinforces Paytm’s merchant-focused strategy and supports its wider payments ecosystem.
Operating Margins Improve Beyond Expectations
Paytm also reported an improvement in operating efficiency during the quarter.
Its contribution margin increased by 71 basis points sequentially to 55.9%, exceeding JP Morgan’s estimates. The company’s EBITDA margin rose by 190 basis points quarter-on-quarter to 10.2%, beating both the brokerage’s forecasts and broader market consensus expectations.
JP Morgan attributed the improvement to stronger operating performance and cost discipline following the resolution of regulatory restrictions.
The brokerage believes Paytm can continue improving its EBITDA despite potential pressure from higher costs associated with default loss guarantees.
JP Morgan Expects EBITDA Margin to Reach 23% by FY29
Despite its positive assessment, JP Morgan flagged some areas that require attention, including a moderation in gross merchandise value (GMV) growth and the possibility of higher default loss guarantee costs in the near term.
However, the brokerage expects EBITDA to continue expanding despite these additional expenses.
It also believes Paytm’s merchant-led strategy can support further margin improvement, even if its consumer business does not see a significant recovery. Improving economics from the Unified Payments Interface (UPI) business are expected to contribute to this progress.
JP Morgan projects that Paytm’s EBITDA margin could reach 23% by FY29.
Positive Outlook on Paytm’s Business Performance
By maintaining its Overweight rating and Rs 2,100 price target, JP Morgan has reiterated its positive outlook on Paytm.
The brokerage’s assessment points to the importance of merchant-led growth, stronger financial services revenue, increasing merchant device deployments and tighter cost management in improving the company’s financial performance.
Paytm’s latest results suggest that its merchant-focused strategy is helping strengthen its operating model and improve profitability. While slower GMV growth and higher default loss guarantee costs remain potential challenges, JP Morgan expects continued EBITDA expansion and better UPI economics to support the company’s longer-term margin growth.
–By Shivani Solanki
