One97 Communications Ltd, the parent company of Paytm, saw its stock trading over two percent higher on the morning of October 10. This surge followed positive developments as prominent brokerages, Motilal Oswal Securities and Yes Securities, raised their target prices for Paytm, and Bernstein included the stock in its portfolio. The market expectations are fueled by anticipation of robust earnings in the September quarter.
Motilal Oswal Securities, while maintaining its “buy” rating, increased Paytm’s target price by 16 percent to Rs 1,000 per share. Similarly, Yes Securities upheld its “add” rating but raised the target to Rs 1,025. Bernstein set an even higher target price of Rs 1,100, surpassing the current market price of Rs 928 per share.
Motilal Oswal Securities predicts a substantial 36 percent year-on-year (YoY) revenue growth in the second quarter, amounting to Rs 2,600 crore. They also anticipate a remarkable 72 percent increase in contribution profit, reaching Rs 14,500 crore. Key performance metrics, such as gross merchandise value (GMV), are expected to grow by 46 percent YoY, and the value of loans disbursed is forecasted to increase by 135 percent YoY and 16 percent quarter-on-quarter (QoQ) to Rs 17,200 crore. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) before ESOP (Employee Stock Ownership Plan) costs is projected to be Rs 175 crore.
Yes Securities envisions strong sequential revenue growth for Paytm, attributed to consistent loan disbursements and the addition of new devices. They anticipate a 14 percent QoQ rise in revenue from operations. Total expenses (excluding payment processing charges) are predicted to grow by 7 percent QoQ, a slight decrease from the 11 percent growth observed in the previous quarter. Consequently, the EBITDA margin (excluding other income and after ESOP cost) is anticipated to improve by 591 basis points QoQ, reaching -6.6 percent.
Following the addition of Paytm to its portfolio, Bernstein noted that in the evolving digital lending landscape, determining outright winners is premature, especially with the impending entry of Jio Financial Services. However, Paytm appears to be well-positioned for success. Leveraging its dominant payment platform and early entry into digital credit products, Paytm has capitalized on its substantial monthly transacting user (MTU) base to gain an edge in the digital lending sector. The company currently holds approximately 1.5-2 percent of high-yield (>13 percent interest rate) household lending volumes. In FY23, Paytm acquired more lending customers than the top four private sector banks combined, showcasing robust customer acquisition capabilities.
While Paytm’s underwriting and collection performance have been impressive, it has yet to face a full credit cycle for a true test. Bernstein analysts expect Paytm to sustain strong growth in the lending business, with a projected 50 percent CAGR between FY23-30E. Simultaneously, an increase in payment volume, even as payment margins decline marginally, is expected to lead to profitability in FY25E, with an estimated EPS of Rs 130 by FY30E.
In the June quarter, Paytm reported a 39 percent YoY increase in revenue, reaching Rs 2,342 crore, and maintained profitability for three consecutive quarters, with EBITDA before ESOP costs reaching Rs 84 crore, up from Rs 52 crore in Q4FY23 (excluding UPI incentives).
At 11:29 am, Paytm’s stock was trading at Rs 927.95 on NSE, marking a 2.51 percent increase from the previous close.