Target: ₹750 CMP: ₹681.35 We upgrade One 97 Communications (Paytm) to Add, while elevating our DCF-based TP to ₹750/share (earlier ₹375), implying 3.6x/3x FY26E/27E EV/Operating revenue, as the easing regulatory stance should pave the way for approvals from NPCI/RBI to onboard new users/online merchants soon and, thus, drive business turnaround. This, coupled with strong cost optimization measures, should put Paytm on an early path to profitability. Management expects the loan distribution business to gradually re-accelerate, led by merchant loans with relatively better take rate/asset quality to do the heavy lifting in the near-to-medium term before PL and other products in the beta stage pick up pace. Paytm’s broking and insurance distribution business is gaining scale and has already turned profitable. It has sold its operationally heavy entertainment business in Q2, which should boost cash buffers as well as reduce net loss in FY25E; it remains open to offload any other non-core business.

The company’s strategy for achieving profitability is multifaceted, encompassing several key areas. Firstly, Paytm is focusing on expanding its digital payments ecosystem, particularly in the areas of financial services and lending. This strategy involves acquiring new customers and increasing the average transaction value per customer. Secondly, Paytm is actively pursuing a strategy of vertical integration, aiming to control its supply chain and reduce reliance on third-party vendors. This strategy is aimed at improving operational efficiency and reducing costs. Thirdly, Paytm is leveraging its strong brand recognition and user base to drive growth in its core business of digital payments. This strategy involves promoting its services through various marketing channels and building a loyal customer base. Paytm’s cost optimization measures are a crucial element in its profitability strategy.