Paytm Delivers Consecutive Quarters Of 60+% Growth
Nifty: 17,053.95 | +27.50 (+0.16%)
FII Net Sold: INR 3,332.21 crore
Sensex: 57,260.58 | +153.43 (+0.27%)
DII Net Bought: INR 4,611.41 crore
In today’s issue of the Morning Toast, we discuss:
- Paytm delivers strong business growth, albeit with a higher net loss
- CVs to maintain positive momentum, while PVs will continue to struggle
- An education concept to keep you chugging along
Paytm delivers strong business growth, albeit with higher net loss; What’s up and what do you need to know? 🤩
Business Overview
- India’s most discussed company (in the recent past) delivered strong 60%+ revenue growth (from operations), primarily driven by 52% growth in Non-UPI (more margin accretive) GMV; Paytm has now delivered consecutive quarters of 60%+ growth (YoY)
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Similarly, uptick in non-core (non payments) business of Financial Services (broking, asset management, insurance), recorded ~3x growth YoY, while commerce & cloud services grew 47% YoY
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Non-UPI Gross Merchandise Value (defined as the rupee value of total payments made to merchants through transactions on Paytm) grew 52% YoY, while overall GMV (UPI + Non UPI) came in at 107% YoY
- Interesting, GMV growth in October (given festive season) was INR 832 Bn, which was ~43% of the entire Q2 GMV, indicating likelihood of a similar run-rate during Q3 on the basis of recurring festive theme & demand
Lending, User Growth & Engagement, Devices Merchant
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Much discussed & spoken about lending business (analyst obsession in India) gathered pace, with number of loans disbursed / value of disbursals up ~2x of Q1 at 2.8 Mn / INR 12.6 bn; average ticket size improved to INR 4300, with core products utilised including consumer loans / BNPL products
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Like GMV, strong demand was seen in the month of October, with the company disbursing 46% of Q2 loans (1.3 Mn loans), on the back of festive theme, which augurs well for Q3
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Monthly Transacting Users (MTUs, defined as unique users with one successful transaction) grew 33% YoY, up by 14.4 Mn accounts during the year; average GMV per MTU increased by 55% YoY indicative of strong engagement on the platform
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Devices (Point of Sale machines & Soundbox) merchant base expanded by 1 Mn YoY, with ~4% of merchants with devices cross sold lending products (through Tier 1 Banks + NBFCs)
Interesting! At what cost? (On point as always :PP) 😅
- Despite strong business growth & modernization in payment processing charges, Paytm continued to report higher net loss at INR 4.7 Bn vs INR 3.8 Bn in Q1FY22, primarily driven by increasing marketing spends and higher employee cost
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On a finer read through, gross payment take rate (amount earned through Non UPI GMV) slipped by 0.12% due to higher UPI GMV contribution to overall GMV numbers (UPI GMV has 0 revenue contribution)
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Contribution profit margin (Operating Revenue – Direct Cost (Marketing, Employee Costs, Server & Cloud costs)) increased to 24% vs 6% YoY due to a sharp pick up in lending business and lower payment processing charges
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To highlight is the sharp absolute uptick in contribution numbers, H1FY22 contribution of INR 5.0 Bn has already exceeded full FY21 contribution profit of INR 3.6 Bn, thus setting the company up for a health FY22
Nice! Final thoughts? Valuations, longer-term outlook? 😏
- Listing wasn’t great (you don’t say), with the stock correcting consecutively for days, until finally finding some support (however short-lived), with the stock +24% in the last 5 days
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The numbers, especially given festive season demand (October month across GMZ + Commerce + Lending) were terrific, with the following months likely only to be value accretive
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That being said, margin pressures from growing market share in UPI GMV is likely to keep core payment contributions under check, and that coupled with increased marketing spends will keep overall % under pressure
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The stocks trades at P / BV of 13x FY24E and P / Op Revenue of 14x FY24E post listing & ensuing correction; to give you context global listed, profitable peers like PayPal & Square trade in the range of 11x P / BV and 10x in P / Op Revenue
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- Channels checks (Source: Emkay Global) indicate another sluggish month for Auto players, across 2W, PV & Tractors, with demand, high-base effect & semiconductor chip shortage playing spoilsport
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On the flip side, Commercial Vehicles (CV) volumes are expected to improve, aided by demand for ICVs, Tippers & replacement demand for MAVs; this is primarily on the back of greater movement (limited lockdowns), better freight rates and infrastructure spend tailwinds
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Induced by strong demand (reflected in robust order book), Passenger Vehicle (PV) stocks have maintained status quo, with volume growth likely to improve on a month on month basis, yet look tepid when compared to same period last year
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2W & Tractor volumes are likely to be lower when compared on a Year on Year basis, with moderation in rural demand, and high base effect on account of pent-up demand of last year
Nice! Tell me more? Some names plsss! (:PP) 🙈
- Volume growth for CV players, including EIM (Eicher Motors, ex-RE), Tata Motors and Ashok Leyland is likely, with each player recording different amounts (basis utilisation of advanced semiconductor chips)
- From a PV perspective, TATA Motors is likely to deliver best-in-class volume growth, with Maruti Suzuki likely to record a decline (problems seem to be continuing for MSIL, who haven’t judged recovery demand adequately)
- 2W players like Eicher Motors (Royal Enfield), Hero MotoCorp, Bajaj Auto & TVS Motors are all likely to deliver volume declines in the high teens to early 20s range, with Eicher & Hero hit harder by advanced chip shortages
- Auto stocks (more or less) have been in a strong space in the recent past, with the overall demand scenario keeping supply side issues at bay, with stocks not particularly reflecting that side of the story
Keep a track for Nov’21 number releases for stock price movement
What else caught our eye? 👀
Bitcoin being taken for a ride
- The Finance Minister has made it clear that the GoI is not even considering a proposal to make $BTC a currency
- The original plan – to ban private cryptos & promote an official digital currency – remains intact
- Meanwhile India’s first crypto unicorn CoinDCX is planning an IPO as soon as it gets gov approval – a major sign of confidence for the digital asset industry
Jio finally follows suit
- Jio has also raised its prepaid tariffs upto 21% following Bharti & Vodafone’s footsteps
- The hike has restored Jio’s tariff discount to Bharti – which is actually a positive move for both
- Most of these hikes are being taken to ensure an ARPU of Rs. 300 which is believed to be sustainable
(Confused? Read about it in detail on our 25th Nov newsletter)
LIC believes in Kotak
- LIC will increase its stake in private sector lender Kotak Mahindra Bank to ~ 10%
- It has received approval for the same from the RBI as well as SEBI (under FEMA)
- LIC held a ~5% stake earlier; Kotak’s share’s meanwhile closed 2% higher after the news
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