Neutral One 97 Communications; target of Rs 1850: Motilal Oswal

What happened

Motilal Oswal reported that One 97 Communications (Paytm) posted a net profit of INR2.25b, an 18% miss to its INR2.7b estimate, due to higher indirect expenses and taxes. Revenue grew 28% YoY and 8% QoQ to INR26.5. The broker reiterated a Neutral rating with a target of Rs 1850.

Confirmed

Global impact / market context

The profit miss shows higher costs can shrink earnings even when revenue grows quickly. Because Motilal Oswal links its Rs 1850 value to future profit and earnings multiples, any change to expected UPI fees could shift the profit forecast and the target.

Analyst inference

The report ties Paytm's outlook to potential fees on UPI payments, which currently generate little direct revenue. A fee change would affect its payment economics, so investors may focus on revenue per transaction, costs, and progress toward the future profit estimates behind the Neutral rating.

Analyst inference

What to watch

1. Motilal Oswal built its estimates to include a potential impact from fees on UPI, which means charges on unified payments interface transactions, and expects profit of INR10.4b and INR26.5b in the next two financial years. Confirmed
2. The broker values Paytm at INR1,850 using 38 times estimated EV/EBITDA, which means enterprise value divided by earnings before interest, taxes, depreciation and amortization, for the later forecast year. Proposed
3. Watch whether revenue growth continues while indirect expenses and taxes stay high, since those items caused the profit miss and could change the earnings used for the Rs 1850 valuation. Analyst inference

Evidence

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