Paytm Share Price: Jefferies Recommends Buy, Pegs Rs 1,300 Target Price; 4 Reasons Why

Global research and brokerage firm Jefferies is the latest to join the bandwagon to give optimistic outlook on fintech giant Paytm's share price. While recommending buy, Jefferies pegged Rs 1,300 target price, which would be over 42% potential upside from current market price. The brokerage finds Paytm's risk-reward attractive, and it expects the digital payment services provider to turn profitable in the next four quarters with estimates of 32% CAGR in revenues over FY23-26E.

Jefferies in its investment rationale highlighted four key pointers for the Vijay Shekhar Sharma-backed company. These are:

1. BNPL and merchant loan model is appreciated:

Jefferies found broad appreciation of Paytm's lending model in BNPL and merchant loan products. In BNPL, investors like a) the visibility on underlying cashflows as spends occur on Paytm's own payments network and b) monthly collections cycle limits the scope of stress build-up in the book.

In merchant loans, investors appreciate a) the daily collection model; and b) Paytm's decision to focus on high-quality merchants rather than increasing the penetration number (

2. Asset quality risks in PL from rising systemic leverage:

Despite the improving bounce rates, investors have concerns on the personal loan business (~25% of disbursals) given recent warnings by the regulator and some large lenders around pockets of stress build-up in the system.

While Paytm too has been highlighting this issue and recently discontinued smalltenor (

3. Competition in merchant space from PhonePe/Jio FS:

With the largest digitally onboarded merchant base (~38mn), Paytm is the market leader in merchant payments (~24% UPI volume mkt share), and this enables a large funnel for risk selection in its merchant credit product.

Also, PhonePe, Paytm's largest competitor, has ramped up the expansion of its merchant device network and Jio Financial Services has indicated its intention to enter this business. Hence, Jefferies find investors are concerned on the incoming competitive intensity in this segment.

4. Disruption from new models between banks and fintechs:

GooglePay has recently announced its partnership with two large private banks for consumer and merchant loans. This has investors concerned about the risk of disruption from new lending models.

The brokerage believes banks entering the eco-system will refine the underwriting and improve investor confidence in the new-age lending models.

Hence, Jefferies said, "We expect Paytm to turn profitable in the next 4 qtrs and forecast 32% CAGR in revenues over FY23-26E. We find valuations attractive at 3.1x EV/ Sales (Sep'25 nos) and 24x EV/Adj. EBITDA and maintain our Buy rating."

The target price is Rs 1,300 for Paytm shares set by Jefferies. This would be 42.33% upside in stock price from current levels.

On Wednesday, Paytm shares ended at Rs 913.40 apiece, down by 0.82% on BSE with market cap of nearly Rs 57,946 crore. Year-to-date, Paytm shares have rallied by a whopping 72% on BSE.

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

Further, in the quarter, EBITDA before ESOP witnessed a robust upside as well and stood at Rs 153 crore. Margin improved to 6%, an expansion of 15 per cent points YoY, on account of an increase in contribution margin and operating leverage.

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.

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.