Paytm’s volatile ride: Is it a bet for risk takers?

By April 2024, the company had partnered with Axis Bank, HDFC Bank, SBI, and Yes Bank to continue serving its existing UPI customers, though it couldn’t onboard new UPI customers. On October 22, 2024, it secured NPCI approval to add new UPI users.

Meanwhile, Paytm introduced Delinquency Guaranteed Loans (DGL) in August 2024. The new revenue stream helped it partially offset loan revenue losses from discontinued loan products.

The market took notice, and Paytm’s share price surged 190% between May and December 2024.

Fig 1: Paytm’s 1-Year Share Price Momentum (Source: Trading View)

Paytm troubles resurface

Just as it was regaining momentum, Paytm encountered another challenge.

In August 2024, SEBI issued show cause notices to One 97 Communications’ board members and Founder and CEO Vijay Shekhar Sharma. SEBI alleged that Sharma was misclassified as an employee instead of a promoter — a move that allowed him to receive ESOPs post-IPO, which is against regulations for promoters.

Adding to its troubles, the Enforcement Directorate (ED) issued a show cause notice on February 27, 2025, alleging that One 97 Communications made investments in Singapore and received Foreign Direct Investments without following RBI guidelines.

These legal battles have diverted management’s focus, increased costs, and delayed Paytm’s path to profitability, further unsettling investor confidence.

Why are FIIs and DIIs still buying?

Despite these challenges, domestic institutional investors (DIIs) have shown growing confidence in Paytm, increasing their stake from 6.85% in March 2024 to 11.88% in December 2024, while public shareholding dipped from 32.75% to 31.93% during the same period. During this period, Paytm’s stock surged 153% before the January 2025 dip.

So, what’s driving this confidence?

RBI’s regulatory actions aren’t uncommon: Financial institutions often face temporary setbacks due to compliance issues, but these disruptions can pave the way for improved products and new revenue streams. Moreover, regulatory compliance builds trust: Over time, adhering to RBI’s framework can strengthen customer and investor confidence.

While Paytm navigates regulatory headwinds, investors seem to be betting on its long-term potential in the BFSI space. Hence, when investors sold Paytm shares in February 2024 on the RBI ban, DIIs bought the shares.

Has Paytm become too big to fail?

Following the RBI’s ban on Paytm Payments Bank operations, the company’s revenue and EBITDA (before ESOPs) dropped 36% and 41%, respectively, in Q1 FY25. Despite this setback, Paytm has been steadily recovering — though returning to its pre-RBI embargo levels will take time.

In FY24, Paytm reported its first full-year EBITDA before ESOPs of Rs 559 crore. The company’s swift recovery from multiple crises has raised the question: Has Paytm become too big a brand to fail?

Fig 2: Paytm’s Key Financial Highlights (Q3 FY24-Q3 FY25) (Source: Paytm’s Quarterly Earnings Presentations)

Paytm has reduced its marketing expenses for two consecutive quarters. During the Q3 FY25 earnings call, Vijay Shekhar Sharma said the company is now focusing on merchant acquisition and expects consumer acquisition to follow due to the flywheel effect.

Paytm uses UPI to drive traffic while cross-selling high-margin financial products like co-branded credit cards and loans. These loans generate revenue through both distribution fees (3-4%) and collection bonuses (1-2%). Paytm reported its first-ever operating profit of Rs 31 crore in Q3 FY23 after it forayed into high-margin digital lending services.

RBI’s guidelines made lenders cut down on small-ticket loans. Now, Paytm is expecting strong growth in First Loss Default Guarantee (FLDG) loans, wherein the upfront cost is high as it has to set aside expected credit loss (ECL) as a guarantee. However, this cost is recovered over the collection period. Analysts are optimistic that the collection bonus and the return of the UPI numbers could bring Paytm back to profitability.

JM Financial expects Paytm to report a profit after tax in Q4FY25. Motilal Oswal Financial Services (MOFSL) expects Paytm to turn EBITDA positive by FY27, while YES Securities expects it to achieve EBITDA breakeven in FY25.

Paytm’s goal: Breakeven and sustain profits

While analysts remain optimistic, Paytm’s management is taking a cautious approach to profitability. The company’s focus is on narrowing the gap between EBITDA and PAT.

To achieve this, the company is refurbishing old devices to reduce capex and depreciation. Its ESOPs cost is also reducing. It is also building a large cash reserve, boosting its interest income.

Fig 3: Paytm’s Cash Balance December 2023 to December 2024 (Source: Paytm’s Q3FY25 Earnings Presentations)

During Paytm’s Q3 earnings call, CFO Madhur Deora acknowledged the challenges in the credit cycle and personal loan segment, emphasising the need to stay cautious while building a long-term business.

Paytm aims to maintain profit sustainability even in a cyclical downturn by diversifying its lender base, scaling operations, and expanding revenue streams. For achieving this, the company is working on expanding its mutual fund and insurance distribution. It has partnered with SBI Mutual Fund to launch the JanNivesh Rs 250 SIP, introduced UPI Trading Blocks to simplify online and app-based equity trading, launched the Receive Money QR Widget for faster transactions without opening the app

Investor outlook: Is Paytm a buy?

Given its pioneering role in digital payments, Paytm remains under RBI’s close watch. The company’s journey — from securing a payments bank licence in 2015 to its ongoing regulatory hurdles — underscores the evolving nature of India’s digital payments landscape.

The payments bank was a learning curve for Paytm and all payment aggregators. The evolving technology and product innovation will give rise to more average revenue per user (ARPU) opportunities.

When asked about re-entering the wallet business, Vishal Shekhar Sharma said, “We are waiting for Paytm Bank’s final outcome, and on the basis of that we’ll take the next step.”

The ED notice and other regulatory challenges will keep the short-term environment highly volatile for Paytm and other payment aggregators. And since the company has not yet generated consistent profits, the only way to value the stock is through forward price-to-earnings (PE) ratio.

JM Financial has a ‘Buy’ rating on Paytm with a price target of Rs 1,250 based on its valuation of 70 times its FY27 earnings per share (EPS). MOFSL has set a price target of Rs 950 based on 18 times FY30 EBITDA discounted to FY26E. Any event that alters the profit estimates could significantly alter Paytm’s share price, making it a high-risk investment suited for risk-tolerant investors.

Taking a long-term view, it would be interesting to see how Paytm completes the climb from a fast-growing industry to a mature industry.

Note: We have relied on data from http://www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.

Puja Tayal is a financial writer with over 17 years of experience in the field of fundamental research.

Disclosure: The writer and his dependents do hold the stocks discussed in this article.

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