Shares of One97 Communications Ltd (Paytm) climbed 3 per cent in Monday’s trade, taking the recent winning run to the sixth straight day. The latest bout of buying on the counter was seen as a host of foreign brokerages stayed optimistic on the stock post the Vijay Shekhar Sharma-led new age company’s March quarter results.
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After reporting an unchanged credit metrics for five consecutive quarters, Paytm has for the first time reported an improvement in ECL (expected credit losses) in its BNPL (buy now pay later) portfolio and reduction in bounce rates across its BNPL and personal loan portfolios, Goldman Sachs said in a note.
Sustainability of Paytm’s credit metrics has been a key investor concern, and the results should help build confidence around the scalability of the company’s lending book, it said while suggesting a target of Rs 1,150 on the stock.
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“We believe these results should largely put to rest debates around Paytm’s business model traction and profitability, and we see resolution of outstanding regulatory issues (ban on PPBL and online merchant onboarding) as the next set of catalysts for the stock,” Goldman Sachs said.
Shares of Paytm rose 5.25 per cent to hit a high of Rs 725.60 on BSE. With this, the stock has risen 13 per cent in six sessions to Monday.
Citi said Paytm has several profitability tailwinds. It said digital payments continue to see robust growth, adding that there is significant headroom for increase in penetration of lending products into existing consumers.
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“We expect adjusted Ebitda/Ebit margins to expand from 5 per cent/minus 3 per cent in 4QFY23 to 13 per cent/9 per cent by FY26E on top line growth at 20 per cent CAGR over FY23-26E. The CMP implies 22 times FY26E EV/adjusted Ebitda,” it said while upping its price target on the stock to Rs 1,144 from Rs 1,103
Paytm reported 51 per cent jump in revenue from operations at Rs 2,334 crore in Q4FY23 on an annual basis. The company brought down its net loss in the March quarter to Rs 168 crore from Rs 761 crore a year ago, and Rs 392 crore in Q3FY23. The company said its revenue growth was led by an increase in gross merchandise value (GMV), higher merchant subscription revenues, and growth of loans distributed through the company’s platform.
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Macquarie said Paytm reported Ebitda before ESOP costs at about Rs 230 crore was better than its expectation of Rs 160 crore largely because of higher UPI incentive fees. The brokerage had expected UPI fees of Rs 130 crore whereas the company recorded Rs 182 crore, which resulted in a beat in Ebitda estimate
Macquarie said many BNPL (buy now pay later) models have failed across the world including India. While Paytm does not carry any balance sheet risk on the loans originated, it carries significant business and reputation risk, the foreign brokerage said.
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“Few months of bad performance could result in lenders withdrawing their credit lines, significantly affecting its ability to grow. There are risks related to competition as well as regulatory issues as Paytm frequently seems to be facing regulatory ire for lapses on its part. We also believe a lot more needs to be done on corporate governance by getting an independent non-executive Chairman, more independent members on the board etc. Stock trades at 4.2 times FY24E sales,” it said while suggesting a target of Rs 800.88 on the stock.
