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Ahead of Paytm’s April-June quarter results, Goldman Sachs has forecasted that the fintech startup would see a third consecutive quarter of about 90% year-on-year (YoY) operating revenue growth, with adjusted EBITDA loss narrowing 13% on a quarter-on-quarter (QoQ) basis.

Goldman Sachs expects Paytm to report an adjusted EBITDA loss of INR 320 Cr with operating revenue of INR 1,690 Cr in Q1 of the financial year 2022-23 (FY23). 

In Q1 FY22, the startup had reported operating revenue of INR 890 Cr. Its revenue from operations stood at 1,541 Cr, a jump of 89% jump YoY, in the January-March quarter of FY22. 

On the other hand, the fintech solutions provider had reported earnings before interest, tax, depreciation and amortisation (EBIDTA) loss of INR 368 Cr in Q4 FY22.

While Goldman Sachs maintained an overall positive outlook on the startup, its analysts slightly differed from the fintech startup’s guidance about being EBITDA positive by September 2023. Goldman Sachs analysts said that Paytm is “firmly on track” to achieve EBITDA profitability by end of the financial year 2023-24 (FY24).

In April, Paytm founder and CEO Vijay Shekhar Sharma said in a letter to shareholders that the startup was looking to breakeven at the EBITDA level by September-end next year, well ahead of estimates by most analysts.

Paytm’s board will meet on August 5 to consider and approve the financial results for April-June 2022 quarter.

Meanwhile, the analysts at Goldman Sachs also believe that Paytm’s recent record growth of monthly transaction users (MTU) suggests that there was limited or no impact on its user acquisition following the Reserve Bank of India’s (RBI) ban on Paytm Payments Bank on onboarding new customers in March this year.

Paytm reported an MTU of 74 Mn during the two months ending May 2022, up 48% from the same period in 2021. As of June 30, the number stood at 76 Mn, up from 70 Mn in February this year.

“We believe this should help allay investor concerns on the [Paytm] stock,” said the analysts.

In fact, the brokerage reiterated its positive commentary on Paytm parent One 97 Communications’s stock and maintained a ‘buy’ rating. However, it tweaked the target price slightly to INR 1,050 from INR 1,070.

“[We] believe the current share price continues to offer a compelling entry point into India’s largest and amongst the fastest-growing fintech platforms,” the analysts added. “Paytm is amongst the best-performing fintech stocks globally over the last 3 months.”

After being a significant laggard on the exchanges since its listing in November last year, Paytm shares witnessed improved performance over the last few weeks. 

At INR 717.4, the shares are currently trading over 63% lower than their debut price on the BSE, but have recovered almost 40% since hitting their lowest level of INR 515.6 mid-May.

“We believe investor focus during the quarter will continue to be on the sustainability of payments take rate (which has been seeing a stable/rising trend in recent quarters), translation of robust loan growth into revenue and rate of improvement in the absolute cash burn,” the analysts at Goldman Sachs said.

In fact, Paytm recently reported disbursing 8.5 Mn loans in Q1 FY23, which was a 30% growth QoQ from 6.5 Mn loans disbursed in Q4 FY22.

“In addition, our recent investor conversations suggest they are closely following credit quality metrics for Paytm, as this could determine scalability of the lending portfolio,” the analysts added.

Goldman Sachs said increasing market competition, regulatory changes, and a few other factors are key risks to its thesis, while the catalysts to the thesis are a faster-than-expected scale-up of Paytm’s lending business, and clarity on digital lending regulatory guidelines, among others. 

The brokerage views Paytm’s risk and reward as skewed to the upside.

The startup’s shares closed 0.3% higher at INR 715.65 on the BSE on Thursday.