Paytm has reasons to celebrate. After waiting nearly a year, the company has finally received the Reserve Bank of India’s in-principle approval to operate as an online payment aggregator.
On paper, this means Paytm can now directly onboard new online merchants, rather than working through other aggregators. For a company that has been trying to re-establish itself after a rough 2024, this is a regulatory green light it badly wanted.
But does it move the needle on earnings? That is less certain.
Most large online merchants already have relationships with rival aggregators. Switching costs are high, and Paytm will not suddenly walk in and capture their volumes. The approval is good optics, no doubt, but investors would do well to view it more as a sentiment boost than a profit driver.
The headlines look great, but beneath the surface, the picture is more complicated.
A profit with caveats
For the first time in its history as a listed company, Paytm posted a quarterly profit.
In the first quarter of financial year 2026, net profit came in at Rs 1.2 billion after a Rs 6.3 billion loss in financial year 2025.
Contribution margins jumped to 60%, and earnings before interest, tax, depreciation and amortisation (EBITDA) margins turned positive at 4%. After years of red ink, the company is finally in the black.
But there is an asterisk.
The improvement was not only about better execution. It also came from a change in the way Paytm’s lending business is structured. Its largest partner moved away from the default loss guarantee (DLG) model. Earlier, Paytm had to bear the upfront cost if a borrower defaulted. Now, it does not.
At the same time, Paytm is still recognising revenues from old loans where the DLG cost had been charged. That makes this quarter look better than it really is.
However, these tailwinds can fade by financial year 2027. In other words, Paytm’s first-ever profit is real, but it may not be fully repeatable.
Growth slows with UPI saturation
Another concern is growth.
Paytm’s gross merchandise value (GMV), which is the total value of all transactions processed on its platform, grew 6% sequentially to Rs 5.4 trillion. That is far slower than the double-digit growth seen in earlier quarters.
But this slowdown is not Paytm’s alone. It reflects a broader industry trend. The Unified Payments Interface (UPI) itself is slowing. Once every kirana store, cab driver and hospital has a QR code, volumes cannot keep doubling. Growth cools naturally.
This saturation in UPI growth is an important shift. It means the old scaling rapidly through new users will not work anymore. Paytm will need fresh levers.
Soundbox: The sticky moat
If there is one steady growth engine, it is the Soundbox.
In the first quarter of financial year 2026, Paytm added 600,000 new Soundboxes, taking the total to 13 million.
These little speakers may look trivial, but they are sticky. Once a shopkeeper gets used to the Soundbox announcing every payment, switching to another provider becomes unlikely.
These boxes are the real moat for the company. They deepen merchant relationships, drive subscription revenues and open the door for cross-selling loans. Paytm has even launched variants like a Solar Soundbox and one with a digital screen. These may sound gimmicky, but for a small shop in a tier-2 town, solar charging or a screen that shows payment confirmation can be genuinely useful.
Lending: The weak spot
Lending is where the cracks show.
Merchant loans are growing steadily, and trail revenue from older loans helped margins this quarter. But personal loans remain weak.
The Reserve Bank of India’s tighter norms on unsecured lending have made banks cautious. Paytm admitted on the earnings call that personal loan growth will remain muted unless the broader credit cycle turns. That could take two to three quarters.
Buy Now Pay Later (BNPL) is still paused due to restrictions on loans under Rs 50,000. Management is keen to revive it when conditions ease, seeing it as a future growth driver. But until then, lending growth will be modest at best.
Questions that bother investors
- Will Paytm ever make money on UPI?
UPI has become India’s default payments system, but it is still free for merchants. Both management and analysts think merchant discount rates (MDR) on large-ticket transactions will come eventually. But the government has avoided it for political reasons. Until then, monetisation from UPI will stay limited.
- Can artificial intelligence really cut costs further?
Paytm has leaned on artificial intelligence to automate customer support and improve employee productivity. That has helped costs, but the question is whether big savings are still left. Management’s answer was that efficiency gains will continue, but investors should not expect a sudden drop in expenses.
- Are margins peaking already?
Contribution margins hit 60% this quarter, but management itself guided for the mid-to-high 50s going forward. Investors have to ask if this quarter was a high point, flattered by accounting quirks, rather than a sustainable new normal.
- What about user growth?
Monthly transacting users ticked up slightly to 74 million. But the real shift is in focus. Paytm is no longer chasing headline user numbers. The strategy now revolves around deepening engagement with merchants. For the company, the growth story is more about strengthening merchant relationships than adding new users.
Valuation Puzzle
Here is the crux for investors. After a 20% rally since the beginning of 2025, Paytm now trades at roughly 33 times its financial year 2027 enterprise value to EBITDA (EV/EBITDA). For a company with slowing GMV growth, a lending business in flux, and accounting tailwinds fading, that looks steep.
The Investor’s dilemma
So where does all this leave investors?
In the short run, Paytm’s stock may get a small lift from the Reserve Bank of India approval and the profit headline.
But the bigger picture is murkier.
Growth is slowing. Margins are flattered by one-offs. Lending has headwinds. And regulatory clarity on UPI monetisation is still missing.
The question for investors is simple: Do you believe Paytm can reinvent itself once again?
Can it build new growth engines such as Buy Now Pay Later, merchant discount rate monetisation, or deeper merchant cross-sell in a market where UPI is already everywhere?
If yes, then the first quarter of financial year 2026 marks the start of a new phase. If not, then this quarter’s profit might be as good as it gets for a while.
Disclaimer:
Note: We have relied on data from 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.
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Manvi Aggarwal has been tracking the stock markets for nearly two decades. She spent about eight years as a financial analyst at a value-style fund, managing money for international investors. That’s where she honed her expertise in deep-dive research, looking beyond the obvious to spot value where others didn’t. Now, she brings that same sharp eye to uncovering overlooked and misunderstood investment opportunities in Indian equities. As a columnist for LiveMint and Equitymaster, she breaks down complex financial trends into actionable insights for investors.
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