Paytm Share Price: 7 Out Of 8 Brokerages Including Goldman, JP, BofA, Citi Suggest Buy; 52% Upside Ahead

Paytm Share Price: One 97 Communications aka Paytm has witnessed a massive profit booking a day after its Q2FY24 earnings despite the performance being strong and in line with estimate. Paytm shares have witnessed a swift rally this month, so much so that it even touched a new 52-week high of Rs 998.30 apiece last week. Hence, investors did cash in some of their gains. But that has not stopped the majority of brokerages from recommending buying share price of this fintech giant.

7 out of 8 brokerages that GoodReturns.In gathered, have recommended buying Paytm shares. But all of them have raised their target price on Paytm.

Among the global brokerages, firm BofA raised its target price to Rs 1,165 from Rs 987.65, Citi raised its target price to Rs 1,300 from Rs 1,160, while JPMorgan has increased its target price from Rs 950 to Rs 1200. Goldman Sachs raised TP to Rs 1,250.

In regards to domestic brokerages, Motilal Oswal has also increased its target to Rs 1160 from Rs 1000, Further, Yes Securities raised target price from Rs 988 to Rs 1100, JM Financial raised its target price to Rs 1,325 and Dolat Capital raised its target price to Rs 1,400 per share making it the highest TP among them all.

From the current target price and market price level, Paytm shares have the potential to skyrocket by nearly 52%. On October 23rd, Paytm shares ended at Rs 922.65 apiece, down by 6.55% on BSE with a market cap of around Rs 58,533 crore.

Since Paytm shares have corrected significantly, a buy-on-dips strategy could be opted.

In Q2FY24, Paytm's net loss narrowed to Rs 292 crore as against a loss of Rs 571 crore in Q2FY23. The company's revenue from operations climbed by 32% YoY to Rs 2,519 crore driven by an increase in merchant subscription revenues, an increase in GMV and growth in disbursements of loans through our platform.

As of September 30, 2023, the company's merchant subscriptions including devices stood at 92 lakh, up by a whopping 91% YoY. Paytm continued to maintain leadership in payment monetization, and it also added 44 Lakh and 14 Lakh new subscriptions in the last year and quarter, respectively. Also, in the quarter, the loan distributions climbed by a massive 122% YoY to Rs 16,211 crore.

What do these brokerages tell about Paytm shares?

Goldman Sachs:

We make modest changes to our estimates on the back of 2Q results, with our TP unchanged at Rs1,250. At c.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 another 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). We reiterate Buy (on CL).

BofA Securities:

Paytm's 2Q results were largely in line with our rev. est (up 32% yoy) but EBITDA was better than our est. led by steady payment growth & credit uptake. Adj. EBITDA came in at Rs 1.53bn (BofAe Rs 1.37bn/1Q24: Rs 840mn), translating to margin of 6.1%. 2Q saw lower than est. costs for marketing, software & other expenses; offset by +7%/8% qoq growth in payment processing charges/employee expenses. KPIs: Payments GMV +11% qoq at Rs 4,500bn, avg MTU's at 95mn and merchants grew to 37.5mn (35.6mn in 1Q). Value of loans disbursed +9% QoQ to Rs 162.11bn, but growth slowed in no. of loans disbursed at +3% QoQ vs 8-14% growth in last 3 quarters.

It added, "Slower loan growth was in line with our expectation as Paytm was consciously looking to prune growth on the loan side and focus on portfolio quality. Post 2Q, we raise our FY24/25 EPS to Rs -14.9/-2.1, leading to DCF moving to Rs 1,195. Our SOTP value moves to Rs 1,136 on the back of a slightly better EV/GMV multiple of 4x/7x for payments/financial services (6x/3.5x previously). As a result, our PO (avg of DCF/SOTP) increases by 14%, to Rs 1,165. Reiterate Buy on favorable risk reward."

Citi:

We view Paytm's accelerating investments behind devices business as a positive as a) it comes ahead of potential competition heating up and b) a merchant lending business which leverages the devices base, is demonstrating solid growth momentum & loan performance trends.

This brokerage also revealed that management targets +1.5mn/qtr device additions in the next 4-6 quarters and merchant loans growth at ~50% CAGR through the next 2yrs (more cautious on personal loans). New partner additions on track - Shriram Finance and Tata Capital (new) to ramp up in 3Q. Raise FY25/26E Adj. EBITDA est. by 31%/28% and Adj. EBIT estimates by 52%/33% & lower multiple to 48x (56x earlier; lower multiple as growth upside risks now incorporated). Raise TP to Rs1,300/sh.

Motilal Oswal:

We revise our estimates slightly upwards and expect Paytm to report EBITDA of Rs 7.9b by FY25 vs. an earlier estimate of Rs 7.8b. We continue to believe that Paytm will achieve earnings breakeven in FY25 and we estimate net earnings to rise sharply from FY26E onwards. We retain our BUY rating.

The target price is set at Rs 1,160 per share.

JM Financial:

We expect a 35% revenue CAGR over FY23-25E for Paytm, with contribution margins sustaining at 50%+ incrementally. We maintain our positive stance on the stock and now see a) Paytm's cash burn having sustainably reduced given strong ecosystem benefits and b) continued momentum in loan distribution business along with better performance metrics. We maintain our BUY rating with a revised target price of INR 1,325 (valuing it at FY30e EV/EBITDA discounted back to FY25).

Dolat Capital:

Given a large number of use cases (both on need and want), huge customer base (MTUs of 95mn+) and robust tech platform, we believe the company can compound its revenues by 8x over the next decade and would turn highly profitable starting FY25E and thus believe DCF valuation as an ideal tool to value real long term potential of the business.

The growth momentum is factored in two stage projections wherein over FY23-FY30E we expect revenue CAGR of 26.4% and in second stage revenue CAGR of 16.1% over FY30-FY40E. We expect it to turn PAT profitable in FY25E and reach a steady state EBIT Margin of 16% over FY31-FY40E. We have factored in the Cost of Capital of 11% and the Terminal growth rate of 2% (beyond FY40e) in our DCF assumptions. View: We maintain our Buy rating on the stock with a TP of Rs. 1,400 (implies 4.3x on FY26E EV/Sales).

Yes Securities:

Although, Yes Securities did not suggest buying Paytm shares the brokerage raised its target price for the company.

We maintain a less-than-bullish 'ADD' rating on PAYTM with a revised price target of Rs 1100: We value PAYTM at 5.2x FY25 P/S to arrive at our price target of Rs 1100.

Disclaimer:

The recommendations made above are by market analysts and are not advised by either the author or 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.