One 97 Communications Limited (Paytm), a leading Mid cap Fintech company recorded its fresh 52-week low on 23 November 2022. Despite this fall, leading brokerage firm Geojit has maintained its optimistic outlook on the stock. Another leading brokerage firm, ICICI Securities in its early November report has also maintained its positive outlook on the Paytm stock.
One 97 Communications Limited, operating under the brand Paytm, is a leading digital payments and financial services company in India, with over 4.5mn merchant subscriptions (payment devices). Paytm's consolidated revenue grew 14.0% QoQ to Rs. 1,914cr, led by platform expansion and increased monetisation across businesses.
CMP, 52-Week Low/High, & Returns Over the Years
The current market price (CMP) of the Paytm stock is Rs 467.20 per share on NSE, 5.87% up from its previous close, trading near the 52-week low. The stock recorded its fresh 52 week low at Rs 438.35 on 24 November 2022. Whereas, it recorded its 52 week high at Rs 1,873.70 on 25 November 2022. It is trading near its 52-week high.
It was listed on the stock exchange in November 2021 and since its listing, it has delivered 70.19% negative returns on investment. In a week, its share price moved down by 14.95, in 1 month moved down by 29.12%, and in 3 months, it moved down by 39.48%, respectively. In the past 1 year, it gave 74.14% negative returns.
Brokerage firm Geojit has a "buy" with a target price of Rs 574 per share to Paytm, if you buy the stock at the current market price, you can get a potential return of up to 24% in 12 months.
Meanwhile, ICICI Securities, in its November 9 report has also placed a buy call on the stock with a target price of Rs 1,285 per share. If you buy the stock at the current market price you can get a potential gain of up to 177% in 12 months.
Decent all-round growth in topline
According to Geojit, in Q2FY23, revenue grew 14.0% QoQ to Rs. 1,914cr, (+76.2% YoY), led by steady growth across all verticals. Payment Services segment registered (+9.1% QoQ) in revenue to Rs. 1,173cr, owing to a (+5.8% QoQ) from its Consumers business and (+12.0% QoQ) from its Merchants business. Moving forward, the company plans to issue ~1mn cards over the next 12-18 months, while the postpaid business also looks to be maturing even as it continues to add over 400k new customers every month. Inroads made into the high-margin loan distribution segment under the postpaid model should aid steady topline growth over the long term.
Robust growth in contribution profit to aid EBITDA
According to Geojit, The company's Adjusted EBITDA remained negative during the quarter at Rs. 166cr, but was up 61.1% on YoY basis. Also, EBITDA margin recovered significantly to -8.7% (as against -39.2% in prior year period), aided by improving contribution margin from its Payments Services business, along with the high-margin loan distribution business, leading to better mix. Contribution profit surged 222.6% YoY to Rs. 843cr (44.1% of revenue, vs. 43.2% in Q1FY23 and 24.0% in Q2FY22). Company should continue to register strong growth in the contribution profit in the near to mid-term, thereby translating to sturdy recovery in EBITDA margins and helping the company achieving Adj. EBITDA breakeven by first half of FY24 as envisioned.
Geojit's Views on Paytm
According to Geojit, the company has managed to successfully monetise its payments business and is in the process of rapidly expanding its merchant network. It has made further inroads into the high-margin loan distribution segment, which should aid topline growth. The gradual improvements seen in contribution profit, supported by reduction in indirect costs should subsequently help the company achieve Adj. EBITDA breakeven in the coming quarters. "With an optimistic outlook on the company's long-term performance, we initiate coverage on the stock with a BUY rating, and hereby assign a target price of Rs. 574 based on 3.5x FY24E P/Sales," the brokerage has said.
ICICI Securities - views & valuation
ICICI Securities in its early November report has said, "One 97 Communications (Paytm) continues to improve its revenue and margin profile, evident in narrowing of consolidated loss at Rs5.7bn in Q2FY23 (vs loss of Rs6.5bn in Q1FY23). The performance was characterised by 1) sustained lower processing charges and net payment margin improving a tad; 2) sharp acceleration in lending business with disbursements of Rs73bn; (3) enhanced contribution/adjusted-EBITDA (before ESOP cost) margin with higher financial services/cloud revenue growth further aided by lower indirect costs; 4) sustained growth in monthly transacting users (MTUs), deployment of offline devices and continued build-up of gross merchandise value (GMV). What failed to cheer: 1) Contribution margin expansion capped at 84bps QoQ to 44.1% due to 34%/15% QoQ increase in promotional/other direct expenses, 2) decline in commerce revenue. Steady improvement in margin profile with better monetisation suggests achievement of operating profitability (positive EBITDA before ESOP cost) ahead of its guided timeline of Q2FY24. Maintain BUY with an unchanged target price of Rs1,285 based on customer lifetime value methodology."
The stock has been picked from the brokerage report of NSE. Greynium Information Technologies, the Author, and the respective Brokerage houses 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.