Paytm Hits New 52-Week High Ahead Of Q2 Results; Here's What Goldman, Jefferies Expect; Says Buy

Fintech behemoth, One 97 Communications aka Paytm has registered stellar buying on Friday as traders are optimistic about earnings growth for the quarter ending September 31, 2023 (Q2FY24) scheduled for later in the day. Paytm stock touched a new 52-week high of Rs 998.30 apiece today and was moving towards the Rs 1,000 mark. Ahead of Q2FY24 results, most of the brokerage firms seem to be upbeat on the stock. The latest buying recommendations are from global brokerages Goldman Sachs and Jefferies.

At the time of writing, Paytm shares traded at Rs 980 apiece, up by Rs 11.30 or 1.2% on BSE. The stock has gained by at least 3.05% in the day by hitting a new 52-week high of Rs 62,170.96 crore.

Paytm has already announced the performance of July and August month for the September 2023 quarter. In the first two months (July and August) of Q2FY24, Paytm's average monthly transacting users (MTU) stood at 9.4 crores 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 yoy.

Further, 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.

In its research note dated October 18, Jefferies said, "Paytm, India's leading payments player, has accelerated monetization of its large eco-system with the ramp-up of credit business. Continued momentum in credit originations (4x FY23-26E) and margin expansion in payments (300bps) will upfront profitability ahead of market expectations. In 4 qtrs, Paytm will enter the global list of large profitable fintech and vals. are yet to reflect its changed profile. Initiate at Buy with PT of Rs1,300 (4.6x Sep-25 EV/Sales)."

Jefferies expects Paytm's revenue growth to remain in the fast lane (31% CAGR over FY23-26E) driven by (a) 55% CAGR in financial services revenues led by ~4x jump in credit originations, and (b) 50% CAGR in merchant subscription revenues on the back of aggressive deployment of merchant devices (~3x network expansion) as Paytm asserts its market leadership.

Meanwhile, earlier, in its research note, Goldman Sachs said, "Paytm's operating metrics have been surprising positively, and we are further raising our FY24-26E EBITDA estimates by 2-5%, with our target price moving to Rs1,250 (was Rs1,200). We forecast 30%YoY revenue growth for Paytm in 2QFY24 (Sep '23; results on 20 October), at the higher end of our India internet coverage, with a 6.3% EBITDA margin (excl. ESOP; was 3.6% in 1Q). At US$200 mn in FY25 EBITDA, we continue to expect Paytm to be the most profitable company within India internet, and see the company turning net income positive in FY25 as a catalyst for the stock. At 37x FY26 P/E, Paytm trades at a 20%/50% discount to Zomato/Nykaa, which we do not see as justified given Paytm's growth profile (26% FY23-25E revenue CAGR."

Goldman has forecasted GMV growth to accelerate 40% YoY to Rs4.5 trillion for Paytm in 2QFY24 (vs 37% YoY in 1Q), implying a c.24% share of India's digital payments. On a sequential basis, the brokerage expects growth at 10% QoQ in Sep quarter (vs 12% QoQ in 1Q). Paytm's market share in overall UPI and P2M UPI has remained stable in recent months (Exhibit 3). It added, "We note that Paytm's monthly GMV growth rate for Jul-Aug '23 (39/47% YoY for Jul/Aug '23) was tracking ahead of our expectations, and as a result, we raise our FY24-26E GMV estimates for Paytm by 5-6%."

Also, Goldman estimated 2QFY24E revenue growth at c.30% YoY (vs. c.39% in 1Q), with 25% YoY growth in Payments (+30% in 1Q), and 69% YoY growth in financial services (93% in 1Q). It believes Paytm to be one of the fastest growing companies within our India Internet coverage. The brokerage also raised its FY24-26E
revenue estimates by up to 3%, driven by higher GMV, partially offset by lower commerce and cloud revenue.

Further, Goldman also raised Paytm's EBITDA estimate. It said, "We forecast adjusted EBITDA of Rs1.6 bn in 2Q (vs. Rs0.8 bn in 1Q), translating into 6.3% margin (vs 3.6% in 1Q). We forecast continued improvement in profitability, with adjusted EBITDA margins reaching double-digits by early CY24. We also expect FY25 to be the first full year of reported EBITDA and net income profitability for Paytm. We have further raised our FY24E-26E adjusted EBITDA estimates for Paytm and remain ahead (c.11% on FY26 adjusted EBITDA) of Visible Alpha consensus."

Last week, Yes Securities also raised the target price on Paytm to ₹1,025 apiece, retaining an 'add' rating. It expects an overall growth in revenue from operations of 14% QoQ.

Axis Capital estimated Paytm to report a 37% YoY and a 12% QoQ jump in revenue from operations at ₹26,239 million. Global Brokerage firm Morgan Stanley estimated an overall revenue growth of 36% YoY vs. 43% YoY last quarter. Motilal Oswal Financial Services also expects a healthy growth in total revenue.

In Q1FY24, Paytm posted a 39% YoY jump in revenue at ₹2,342 crore with continued profitability for three straight quarters. The company's EBITDA before ESOP costs grew to ₹84 Cr as compared to ₹52 Cr in Q4FY23 (excluding UPI incentives).

Disclaimer:

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.