Paytm shares rise 17% in 5 days; potential to reach ₹1,100- ₹1,300 ahead. What experts say?

On Friday alone, Paytm shares climbed at least 8.4% on Dalal Street before correcting. The stock ended at ₹536.90 apiece higher by ₹7.06% on BSE. The fintech has a market valuation of over ₹34,853 crore.

From November 28 to December 2, Paytm shares climbed by a massive 16.92%. The stock was near ₹465 level last week’s Friday on BSE. Compared to its 1-year low of ₹439.60 apiece which was recorded last month, Paytm shares have now gained by over 24% to date. This is taken into consideration the intraday high of ₹543.45 apiece on December 2.

Taking into consideration December 2nd’s closing price, then Paytm shares have advanced by nearly 16% this week. While the shares have jumped by over 22% from their 52-week low.

In Q2FY23, Paytm’s net loss widened to 571 crore from a net loss of ₹472.90 crore in the same quarter last year. However, sequentially, the company’s net loss narrowed from ₹644.4 crore in June 2022 quarter. Consolidated revenue climbed by 76% yoy and 14% qoq to ₹1,914 crore in Q2FY23 — driven by an increase in merchant subscription revenues, growth in bill payments due to growing MTU, and growth in disbursements of loans.

What do major brokerages say about Paytm’s share price going forward?

Major experts such as Morgan Stanley, CLSA, and JM Financial have set a target price of between ₹600 to ₹700 on Paytm stock going ahead.

JM Financial in its note said, “While we have remained cautious on Paytm’s business model since our initiation given the high cash burn, risk on take rates in financial services business and long road to profitability, its operating metrics are gradually improving (net payment margin, ramp up of financial services) with management’s focus on increasing efficiencies and profitability, which in turn should aid Paytm achieve EBITDA breakeven by FY26E, in our view. Further, Paytm’s stock price has corrected by c.77% since its IPO (last year) which has made risk reward favourable for Paytm.”

Further, JM Financial’s note added, “on our valuation metric of FY30E EBITDA discounted back to FY24E, Paytm is currently trading at 14x EV/ EBITDA which is in line with average valuation of global peers. We upgrade Paytm to BUY with an unchanged TP of ₹600 with upside risks possible if momentum in revenue continues along with cost moderation.”

Meanwhile, in its latest note, Morgan Stanley said, Paytm management sounded confident of strong growth as well as achieving its adjusted EBITDA break-even target by Sept-23. Management highlighted strong TAM across its business segments, and alluded to continued strong growth in GMV, MTUs, and loan disbursements as well as significant scale-up in credit cards/advertisement revenues over the next few years.

Further, the management reiterated its focus on profitability, and it expects free cash flow to turn positive over the next few years. With respect to regulations, management doesn’t see any significant risk to its payment margins. Per management, the net payment margin should remain broadly steady, even if there is a reduction in interchange/MDR.

According to Morgan Stanley, the risks to the upside for Paytm are — allowance of merchant discount rate under UPI; introduction of interchange on wallets as it turns interoperable; and better-than-expected execution on financial services, in terms of underwriting and large bank/NBFC tie-ups. While the risks to downside are — higher-than-expected competitive intensity in payment and/or reduction in payment charges; weak execution in financial service; and a negative impact from changes to digital payment charges. Stanley has given ‘equal weight’ to Paytm with a target price of ₹695.

CLSA has set a target price of ₹650 on Paytm shares.

After the analysts meet with Paytm, CLSA in its note said, “management explained its business model and gave insights on its payments and lending businesses. On profitability, it expects to become free cash flow positive in the next 12-18 months, which is in line with our view of cash burn ending in the next 4-6 quarters… We maintain our BUY rating and target price of Rs650 and note that the company has more than $1 billion net cash (equating to more than 25% of its current market cap). Below are the key takeaways from the analyst meeting.”

On the other hand, analysts at ICICI Securities and Goldman Sachs expect Paytm shares to reach a whopping ₹1,100 to ₹1,300 level.

In its note, Goldman Sachs said, “we are encouraged by new disclosures made by Paytm, the company’s focus on FCF and profitability, reducing competition in devices, and focus on aligning business with regulations; however, timelines around the resolution of merchant and consumer onboarding (payment aggregator and payments bank bans, respectively) still remain unclear. We incorporate new disclosures into our numbers, leading to limited estimate changes; we remain to Buy rated (on Conviction List) on Paytm with an unchanged 12-month SOTP/DCF based price target of Rs1,100.”

On the contrary, ICICI Securities has given the highest target price on Paytm among the other brokerages.

In ICICI Securities view, Paytm management also enhanced clarity around the company’s business model by providing additional disclosures with respect to net payment take-rate of 7-9bps, an average subscription fee (of Rs100 per month per active device), 2.5-3.5% take-rate on loan sourcing, and 0.5-1.5% on collections, etc. Besides, the management pointed at growth drivers in the various business segments and threw light on how it plans to generate free cash flow (FCF). Lastly, clarifications provided around regulatory developments with no onerous outcome provide further comfort.

Thereby, ICICI Securities said to maintain BUY with an unchanged target price of Rs1,285 based on customer lifetime value methodology.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.