Paytm’s Share Price Rises For The Second Day In A Row, Reaching The 20% Upper Circuit

Paytm’s Share Price Rises For The Second Day In A Row, Reaching Upper Circuit; CLSA, Goldman, And Citi Raise Target Prices

On Tuesday, the share price of One 97 Communications aka Paytm’s rose for the second day in a row. The stock hit a 20% upper circuit in early trading. While the stock has risen by more than 27% in two days. Following strong third-quarter results, major brokerages around the world have raised their target price for Paytm shares. Paytm’s stock is expected to rise by triple digits in the coming months.

Paytm’s shares were trading at 612.75 per share on the BSE at the time of writing, up 9.81% or 54.75. It has a market capitalization of approximately 39,787.96 crore.

Paytm’s shares have started the week on a high note following the release of Q3. On Monday, the share price on Dalal Street closed at 558, up 6.31%. So far this week, the shares on D-Street have risen by at least 27.55%.

The digital financial services provider’s consolidated net loss shrank dramatically to 392 crore in the December 2022 quarter, down from 778.4 crore the previous year. Meanwhile, revenue increased 42% to 2,062.2 crore in Q3FY23 from 1,456.1 crore in Q3FY22, driven by increased consumer adoption and subscription services by merchant partners, as well as continued growth in loan distribution and commerce business.

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Paytm’s founder and CEO, Vijay Shekhar Sharma stated that the company met its operational profit target, excluding ESOP costs, during the December quarter.The fintech reached an operating profitability milestone with EBITDA before ESOP cost of 31 Crore, well ahead of its projected September 2023 deadline.

Brokerages including Citi, CLSA, and Goldman Sachs have recommended purchasing Paytm stock following Q3FY23 earnings, while BofA has maintained its ‘neutral’ rating on the stock.

The majority of brokerages raise their Paytm target price:

According to CLSA analysts in their report, “Paytm had a strong performance in 3QFY23, posting positive Ebitda (ex-ESOP costs) and exceeding its own guidance of break-even by Sep-23 by three quarters. Furthermore, unlike 3QFY22, the company did not record any UPI incentive in 3QFY23, implying that the Rs1.3 billion top-line guidance for 4QFY23 is already confirmed above the normal run rate. As a result, the positive Ebitda trajectory is likely to continue.”

The majority of brokerages raise their Paytm target price:

According to CLSA analysts in their report, “Paytm had a strong performance in 3QFY23, posting positive Ebitda (ex-ESOP costs) and exceeding its own guidance of break-even by Sep-23 by three quarters. Furthermore, unlike 3QFY22, the company did not record any UPI incentive in 3QFY23, implying that the Rs1.3 billion top-line guidance for 4QFY23 is already confirmed above the normal run rate. As a result, the positive Ebitda trajectory is likely to continue.”

CLSA is bullish on the fintech giant following strong third-quarter results. In terms of valuation, it stated, “Paytm added 1 million devices in 3QFY23, in line with its prior guidance, in the merchant device subscription business. We raise our Ebitda ex-ESOP costs estimates for FY25-26CL by 14-20%, and our DCF-based target price rises to Rs750, implying a 43% increase. We lower the risk-free rate based on our updated country macro estimates and lower the cost of equity. We reiterate our BUY recommendation.”

With fixed costs under control, margins can comfortably expand. “Our SOTP implies 36x EV/Adj EBITDA on Mar’26E,” according to Citi’s note. The stock trades at 16x, which we believe is a bargain given the strong growth trends and the solid profitability ‘beat’ this quarter, with the potential for a strong profitability trajectory ahead (Fig 14). The stock trades at a significant discount to its Indian consumer internet peers (Paytm at 16x vs.

Zomato/Nykaa are valued at 20x/27x FY26E EV/Adj EBITDA. Buy.”

Citi has raised its target price for Paytm to $1,061 per share from $1,055 previously.

Meanwhile, Goldman Sachs anticipates that investor debates will centre on Paytm’s ability to maintain industry-leading growth rates while maintaining credit metrics, as well as whether margins can continue to expand from here.

Paytm’s valuation multiples are currently lower than those of its peers.

Golman raised its FY24/FY25 adjusted EBITDA estimates for Paytm by 30%/14% on the back of significantly stronger 3QFY23 (Dec ’22) results, while maintaining a ‘Buy’ rating, and target price to Rs1,150 (from Rs1,120).

“We expect profits to remain stable, but with continued strong traction in disbursals, operating leverage, and UPI reimbursement in Mar ’23, we expect adjusted EBITDA margin to increase to 6% (vs +2% in Dec ’22), with c.US$190 million in adjusted EBITDA by FY25, one of the highest within our India internet coverage. We believe that Paytm reporting adjusted EBITDA profitability will be a significant catalyst for the stock, and we anticipate net income profitability in FY25 “According to Goldman’s note.

Paytm’s , on the other hand, is rated ‘Neutral’ by BofA Securities. According to the note, “We are optimistic about the fundamentals and see room for Paytm to expand aggressively without putting its balance sheet at risk. While Paytm has key differentiating factors in comparison to peers, we anticipate a slower path to monetization and delayed EBITDA breakeven due to increased competition and additional regulatory risks. In our opinion, the lending business provides an upside option for Paytm, allowing it to scale up subject to execution.”