Paytm Shares Surge on Strong Q2 Results, AI Revenue Hopes, and MSCI Inclusion; Brokerages Mixed

One97 Communications, widely known as Paytm, experienced a stock surge of over 4% following the announcement of its second-quarter fiscal year 2025 financial results. The company reported strong sequential growth, with revenue increasing by 7.5% quarter-over-quarter (QoQ) to ₹2,061 crore, and a substantial 24.2% year-over-year (YoY) jump. Contribution margin remained healthy at 59%, and the EBITDA margin improved to 7% from 4% in the previous quarter, primarily due to reduced indirect expenses attributed to operational efficiencies. Management indicated that Artificial Intelligence (AI) is expected to be a key driver for sustained indirect expense control and future margin expansion.

Profit after tax (PAT) saw a significant sequential increase of 71.5% to ₹211 crore. However, this figure includes a one-time charge of ₹190 crore for the full impairment of a loan to its joint venture, First Games Technology. Excluding this exceptional item, PAT actually declined.

**Brokerage Reactions:**

* **Citi** reiterated a 'Buy' rating with a price target of ₹1,500, citing strong growth in credit on UPI and improved net payment margins. They raised margin estimates for FY26-28 and noted better device economics. * **CLSA** maintained an 'Underperform' rating with a ₹1,000 price target, acknowledging a likely beat in results despite changes in disclosure regarding ESOP expenses. * **Jefferies** maintained a 'Buy' rating and raised its price target to ₹1,600, anticipating a 24% revenue CAGR and margin expansion from FY25-28 due to core business growth and new initiatives.

**MSCI Index Inclusion:**

Adding to the positive sentiment, MSCI announced the inclusion of One97 Communications (Paytm) in its India Standard Index, a move that often leads to increased institutional investment.

**Impact** This news has a significant positive impact on Paytm's stock due to strong financial results, a positive outlook on AI-driven efficiencies, and increased visibility from MSCI index inclusion. However, mixed brokerage views introduce some caution. The overall impact on the Indian stock market would be moderate, affecting the fintech and technology sectors primarily. Rating: 8/10

**Difficult terms and their meanings:**

* **QoQ (Quarter-over-Quarter):** A comparison of financial metrics from one quarter to the next. * **YoY (Year-over-Year):** A comparison of financial metrics from a specific period in one year to the same period in the previous year. * **EBITDA:** Earnings Before Interest, Taxes, Depreciation, and Amortization. It's a measure of a company's operating performance. * **Contribution Margin:** The difference between revenue and variable costs. It shows how much revenue is left to cover fixed costs and generate profit. * **PAT (Profit After Tax):** The profit remaining after all expenses, including taxes, have been deducted from total revenue. * **Basis Points (bps):** A unit of measure used in finance equal to 1/100th of 1% (0.01%). For example, 100 bps is equal to 1%. * **CAGR (Compound Annual Growth Rate):** The average annual growth rate of an investment over a specified period of time longer than one year. * **ESOP (Employee Stock Ownership Plan):** A benefit plan where employees are granted company stock. * **MSCI India Standard Index:** An index created by Morgan Stanley Capital International that represents the performance of Indian large and mid-cap equities.