Axis Capital Suggests Buy On Paytm Stock For Gains Of Upto 38%

Stock Outlook- CMP, 52-week Low/high, Returns, and Potential Upside

The current market price (CMP) of the stock stood at Rs 681.50 per share on NSE. The stock's 52 week high is Rs 1,955 per share recorded on 18 November 2021 and the 52 week low is Rs 510.05 per share recorded on 12 May 2022, respectively.

Paytm was listed on the stock on 18 November 2021. Since its listing, it has given 56.34% negative returns. In the past 1 week, it has given 3.67% negative return, whereas, in the past 1 month it has given 6.08% negative return. The stock in the past 3 months has given 5.13% negative return. 

 

Financial services - loan disbursement up 32% QoQ

Loan disbursement momentum was strong in Q2FY23 at Rs 73.1 bn, ~5.8x YoY and up 32% QoQ. Value of loans disbursed was ~10% above our estimate. In volume terms, it was ~3.2x YoY/ up 8.4% QoQ at 9.2 mn loans. Average ticket size continues to trend up at ~Rs 7,960 (+80% YoY, +21% QoQ). Improvement in average ticket size indicates higher credit demand and higher risk appetite among lenders as asset quality trends remain comfortable. In Sep '22, value of loans disbursed was at Rs 28 bn, up 15% MoM, and ~3.2 mn loans (+7.4% MoM) in volume terms.

Payments - GMV up 7.6% QoQ

Gross Merchandise Value (GMV) grew 63% YoY/ 7.6% QoQ in Q2FY23 to Rs 3.2 trn (~2% below our estimate). Average Monthly Transacting Users (MTU) grew 39% YoY/ 6.6% QoQ to 79.7 mn (~81.5 mn in Sep '22). Devices deployed at merchants (POS + Soundbox) increased to 4.8 mn in Q2FY23, up ~3.7x YoY/ 26% QoQ, maintaining quarterly run rate of ~1 mn new devices. Higher adoption of devices should support higher GMV, increase payments revenue from merchants and provide higher cross-sell opportunity for merchant loans.

Q2FY23: Contribution margin can be higher than our estimate

Better-than-expected traction in loan disbursement can lead to higher share of financial services in overall revenue vs. our estimates, leading to a higher contribution margin (our Q2FY23 estimate is 44.9%, +170 bps QoQ). Consequently, this could lead to a lower-than expected EBITDA (before ESOP cost loss; our estimate Rs 2.25 bn of loss in Q2FY23 vs. Rs 2.7 bn in Q1FY23). Healthy business performance across operating metrics supports our positive stance on Paytm.

Strong financial services revenue to drive margin, buy

According to Axis Capital, Paytm continues to report strong traction in its financial services vertical driven by improved loan disbursal run-rate and higher average ticket size. Steady momentum in monthly active users in payments vertical drove GMV up. In Q2FY23, Paytm originated ~Rs 73.1 bn of loans (~5.8x YoY, +32% QoQ) in value terms and ~9.2 mn loans (~3.2x YoY, +8.4% QoQ) in volume terms. GMV momentum was steady at +63% YoY/ +7.6% QoQ on higher MTUs (+6.6% QoQ). Company continues to add devices (POS + soundbox) at a healthy pace of ~1 mn per quarter, with overall devices at 4.8 mn. Strong traction in loan disbursement and faster growth in financial services revenue bode well for improvement in contribution margin. Maintain BUY with a Target Price of Rs 1,000.

Disclaimer

The stock has been picked from the brokerage report of Axis Capital. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.