After shares of One 97 Communications, which runs Paytm, jumped over 90% from its 52-week low level of Rs 439, global brokerage firm BofA Securities today raised the target price to Rs 1,020 from Rs 885.
“We expect its momentum in high margin lending and Soundbox business to remain good for at least next 3-4 quarters and see upside risks to consensus estimates,” BofA said, adding that given the rising contribution from high margin businesses and cost control initiatives, it expects Paytm’s margin improvement to happen at faster than earlier expected pace.
Read More: Adani Ent, Adani Power, And Other Adani Stocks Fall Up To 6%; Know Why Are Stocks Falling
The brokerage firm has increased its FY25/26E EPS to -3.86/5.29, leading to a DCF value increase of Rs 1,024. “We also increase payments/financial services multiple to 3.5x/6x (from 3x/5x) to factor in re-rating of global peers and expect a narrowing gap for Paytm given its improving business momentum,” it said while reiterating buy rating on the back of favorable risk-reward.
BofA expects visibility of 4-5 million Soundbox additions per year for the next 2-3 years
Paytm, India’s leading payments and financial services company and the pioneer of QR and mobile payments, has been racing ahead with its top performance by gaining global brokerage and research firms’ confidence, who are optimistic about its growth.
Read More: SBI shares fall for five straight sessions; what’s next?
“We estimate India has 40-45 million merchants with decent business size: of these 2.5 million are large merchants, 20-25 million are tax-compliant SMEs and 15-17 million are SMEs with low turnover. We believe the target market for Soundboxes is 25 million medium-sized SMEs and 15-17 million smaller SMEs. We estimate Paytm could add 15 million devices in the next 2-3 years,” BoFA said.
As Paytm charges Rs 100/month, the visibility on subscription revenue is high. It expects EBIT margins to be 40% in a steady state and expects payback on these boxes in 12-14 months (capex per box is Rs 1,250). Key competitors in the Soundbox have had limited impact, it mentioned.
On the back of increased business momentum, narrowing of losses, and upgrades by brokerages, Paytm shares have rallied over 36% in the last 3 months.
Read More: Accenture Forecasts Q4 Revenue Below Estimates; What It Means For Indian IT Firms?
In the March quarter, the company’s consolidated net loss narrowed to Rs 168 crore from Rs 761 crore a year ago, and Rs 392 crore a quarter ago. Consolidated revenue from operations surged by nearly 52% year-on-year to Rs 2,335 crore.
Following the Q4 results, global brokerage firm Macquarie maintained an ‘outperform’ rating on the stock while Goldman Sachs took a ‘buy’ view. Citi sees the stock rallying to Rs 1,144.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own.)
