Paytm share price plunges 7% despite Q2 profit growth. Here's why

Paytm share price today: The digital payment firm's share price plunged sharply despite the company posting a net profit in the second quarter of the ongoing financial year.

In Short

• Paytm reports quarterly profit of Rs 930 crore
• Shares drop over 7% despite profit announcement
• Revenue from operations declines 34% year-on-year to Rs 1,659.5 crore

Paytm reported a profit of Rs 930 crore for Q2 FY25 on Tuesday, marking a turnaround from the loss it had posted in the same quarter of the previous year. However, despite this achievement, shares of its parent company, One97 Communications Limited, dropped over 7% in early trading on Tuesday. During the quarter, Paytm's revenue from operations was Rs 1,659.5 crore, down 34% year-on-year from Rs 2,518.6 crore.

The company’s loss before exceptional items and tax widened to Rs 406.5 crore, compared to Rs 273.3 crore a year ago. However, the quarter did see an extraordinary gain of Rs 1,345.4 crore from the sale of its ticketing business to Zomato, leading to a profit before tax of Rs 938.9 crore, a significant improvement from a loss of Rs 279 crore in the same period last year.

In its earnings release, Paytm noted that it has started disclosing the number of key financial services customers. The company reported that 600,000 customers availed financial services during Q2, an increase from 590,000 in the previous quarter.

Gross Merchandise Value (GMV) for the quarter stood at Rs 4.5 trillion, up 5% quarter-on-quarter. Paytm highlighted that it managed to improve its payment processing margin significantly and expects it to be in the range of 5-6 basis points for the year.

As of September 2024, the company's merchant subscriptions reached 11.2 million, with a focus on improving its operational efficiency by redeploying inactive devices to new merchants. This strategy has been instrumental in reducing capital expenditures and enhancing subscription revenue.

On the regulatory front, Paytm received approval for downstream investment from One97 Communications Ltd into its subsidiary, Paytm Payments Services Ltd. The subsidiary has resubmitted its application to the Reserve Bank of India (RBI) for onboarding new online merchants.

Despite the positive financial results, Paytm shares were trading at Rs 678.40 on the Bombay Stock Exchange by midday, with the market capitalization standing at Rs 43,230 crore. Over the past year, Paytm's shares have declined by 21.3%, in stark contrast to the Sensex, which has risen by 26%.

Overall, while Paytm has made strides toward profitability and improved its financial metrics, the market's reaction suggests that investor sentiment remains cautious, especially in light of the company's declining revenue from operations and previous regulatory challenges.