Comeback Of Titan? Paytm Shares Hit New 52-Week High, Best Performance Since February 2022; Buy Still?

Paytm is among the giants when it comes to the country's digital payment and financial services providers. And, this giant has seen both glorious and bitter days on stock exchanges since it launched the second-largest IPO of the Indian market history of Rs 18,000 crore in late-2021. From trading over Rs 1,800 to dropping even below Rs 500 levels, Paytm shares have seen it all. But on Thursday, a promising performance was witnessed in Paytm as the new-age companies leader touched a new 52-week high of Rs 984.90 apiece, which is its best performance since early February of 2022. A potential of crossing Rs 1,000 levels is on the horizon for Paytm.

On BSE, in the early trade, Paytm shares touched a new 52-week high of Rs 984.90 apiece. This would be an upside of a whopping 124% from its 52-week low of Rs 439.60 apiece.

The last time Paytm was above Rs 980 levels was on February 7, 2022, when the stock was also on the same level of Rs 984.90 apiece. Since its IPO launch in November 2021, Paytm shares at all-time high and low is Rs 1,875 apiece and Rs 439.60 apiece respectively on BSE.

Paytm launched the second largest IPO of Rs 18,000 crore in the history of the Indian market, following LIC's Rs 21,000 crore IPO in 2022 which is the largest, and ahead of Coal India's Rs 15,200 crore IPO which was launched in November 2010.

Paytm is set to announce its September quarter results for FY24 on October 20. It would be the sustained growth in Paytm that has made investors love blossom once again for this stock.

In the first two months (July and August) of Q2FY24, Paytm's average monthly transacting users (MTU) stood at 9.4 crore for the quarter to date, up by 20% YoY which reflects the continued expansion of its customer base. Not just that Paytm has maintained leadership in payment monetization with the number of merchants paying subscriptions for payment devices at 87 lakh as of August 2023, an increase of 42 lakh
devices y-o-y.

Also, Paytm's merchant payment volumes (GMV) for the quarter to date (for July & August) stood at Rs 3 lakh crore ($36.3 billion), y-o-y growth of 43%. Its loan distribution business (in partnership with its lender partners) continues to gain
scale with disbursements of Rs 10,710 Cr ($1.3 billion, y-o-y growth of 137%) and 88 lakh loans (y-o-y growth of 47%) disbursed in quarter to date (for July & August 2023) through the Paytm platform.

The overall Q2FY24 of Paytm is expected to be healthy on steady loan disbursements and new device additions. Brokerages have raised their target price on Paytm between Rs 1,000 to Rs 1,100 in the near term.

In Q2FY24, Paytm Yes Securities said, "We pencil in an overall growth in revenue from operations of 14% QoQ. We forecast Payment Processing Charges (PPC) as a proportion of payment revenue to be at 54.5%, a metric that was 54.9% in 1QFY24. We arrive at a Total Expenses (ex PPC) growth of 7% QoQ, compared with a growth of 11% in 1QFY24, resulting in an EBITDA margin (ex Other Income and after ESOP cost) of -6.6%, an improvement of 591 bps QoQ."

And hence, Yes Securities has given an 'ADD' rating on Paytm for a target price of Rs 1,025 per share.

Meanwhile, Motilal Oswal also expects double-digit growth in Paytm's GMV, while the value of loan disbursed is to record triple-digit percentage growth.

In its note, Motilal Oswal said, "We estimate 2QFY24 GMV to grow 46% YoY to Rs 4.7 trillion, while the value of loans disbursed is likely to grow 135% YoY/16% QoQ to Rs 172 billion," adding, "we expect revenue from operations to grow 36% YoY to Rs 26 billion, while contribution profit is estimated to grow 72% YoY to Rs14.5 billion (contribution margin of ~56%). We estimate EBITDA before ESOP costs to come in at Rs 1.75 billion."

On the back of improvement in contribution margin & operating leverage, Motilal Oswal has given a buy rating on the stock with a target price of ₹1,000, as compared to a current price of ₹928 apiece. Moreover, it believes in steady growth in loan disbursements and GMV and expects the number of subscription payment devices to show strong traction.

Additionally, global research and broking firm Bernstein has pegged a target price of ₹1,100 a share for Paytm with an 'outperform' rating.

Bernstein said, "While it's too early to declare winners in the digital lending space, especially with the expected entry of Jio Financial Services (not covered), PayTM does appear to be on the right side of disruption with its dominant payments platform and a head start in digital credit products. PayTM has leveraged its large Monthly Transacting User (MTU) base, thanks to its dominant position in payments, to gain a head start in the digital lending segment."

Paytm currently captures ~1.5-2% of high yield (>13% interest rate) household lending volumes and in FY23, it added more lending customers than the number of credit card additions by the top 4 private sector banks combined - signs of an edge in customer acquisition, said Bernstein.

Also, Bernstein pointed out that Paytm's underwriting and collection outcomes are impressive too, but remain untested through a full credit cycle.

It added, "We expect PayTM to continue its strong growth in the lending business (~50% CAGR between FY23-30E). Simultaneously, a rise in payments volume (even as the payment margins decline marginally) will ensure that the business turns profitable in FY25E and achieves an EPS of ~Rs 130 by FY30E."

During the first quarter of FY24, Paytm garnered a 39% YoY jump in revenue at Rs 2,342 crore with continued profitability for three straight quarters. The company's EBITDA before ESOP costs grew to Rs 84 crore as compared to Rs 52 crore in Q4FY23 (excluding UPI incentives).