Shares of One97 Communications aka Paytm extended their rally for the third consecutive day on Tuesday. Shares are currently around 675 level on Paytm and JP Morgan is overweight. US investment banker expects Paytm to regain 1,000 points by the end of March 2023, as the company’s financial services business grew and payments reached a positive margin. While winter funding in the fintech industry is likely to reduce competition for the company. In addition, Paytm’s Q2 earnings are likely to be critical to assessing evidence of a reduction in losses and growing confidence. From its record low in May, Paytm shares have gained over 32%.
Closed on Paytm shares on BSE above 674.75 14.15 or 2.14%. The company reached even higher levels 676.90 each in intraday trade. At present the market cap of the company is approx. 43,785.42 crore.
Paytm shares have gained nearly 6% in the last three trading sessions.
Paytm shares hit 52-week low 511 on May 12, 2022. Since then, the shares have risen more than 32% to date.
However, the shares of Paytm are still low as compared to the day of its listing. Paytm made its market debut on November 18 last year. Shares hit 52-week high The company’s IPO, which was launched between November 8 and 10 last year, was subscribed 1.89 times on the last day.
Should you buy Paytm shares?
According to analysts at JP Morgan, Paytm’s annual loan disbursement run-rate is ~Rs 290 billion as of Aug-22 and its penetration is 4% and <0.5% of MTU for postpaid and personal loans, respectively, and 4% for device merchants. % Is. Merchant Loans (till June-22). The company sees a long
Runway for growth in the segment driven by its MTU (79 million by Aug-22; +40% y/y) and capacity of Device Merchant (4.5 million by Aug-22 – directed to add 1 million per 1 quarter) base, and 2) increasing penetration between bases. The company also noted that its portfolio credit losses are operating below levels underwritten by financing partners, which could increase the scope for incentive income on its syndicated loan book.
In their latest research report, analysts at JP Morgan further stated that Paytm is improving the margins of its payments business, which is due to 1) the scale-up of merchant devices (increasing rental revenue; ~12-15 months of its signature soundbox) payback on the device) and 2) rationalization of processing costs. Tailwinds exist for margins from either MDR introduction (unlikely) or increased subsidies from the government (currently at ~$200mn) from potential UPI P2M monetization to support network investments. UPI becoming monetizable through P2M government discounts is a major medium-term positive for payments economics.
Analysts at JP Morgan say that given the funding and regulatory hold in the sector, fintech could reduce the competitive intensity in the payments/digital lending space. In his view, this could benefit Paytm as it is well funded to drive the expansion and also highlighted that it is compliant with digital lending regulatory guidelines.
Further, according to analysts, Paytm’s Q2 earnings will be crucial to see evidence of reduction in earnings losses and rising confidence in the September-23 breakeven.
“Paytm is reinvesting profits in marketing and contribution margin to its device business buildout, which has limited its EBTIDA margin improvement. As the business expansion captured the investment base,” the analysts note said. Going by, growth in indirect expenses is moderate which may drive significant operating jaws in adj. EBITDA losses. We think it will be important for Paytm to receive its guidance for Sep-23 edge EBITDA profitability. “
On valuation, analysts at JPMorgan said, “We value Paytm using DCF valuation baking in rising cost of capital with 18.5 percent COE and 20x exit multiplier, meaning 1,000 pts. This is a SOTP valuation. Benchmarking is supported by EV/. Sales for its payments/financial services/commerce/cloud businesses are many times higher than 4x/10x/4x/8x for global counterparts.”
target price of 1,000 on Paytm is scheduled for the end of March 2023.
In Q1FY23, Paytm’s net loss widened to 644.4 crore from the loss of 380.2 crore in the first quarter of the previous year. However, revenue from operations remained on 1,679.6 crores in Q1FY23, a growth of 88.55% year-on-year and qoq 9%.
During the first quarter, the company’s GMV was 3 lakh crores an increase of 101% annually. In addition, Paytm continued to grow its Monthly Transaction Users (MTU), driven by customer acquisition through UPI and expansion of its registered merchant base, to 74.8 million, which grew to 28.3 million (6.5 million). million increase). 21.8 million in Q1 FY 2022).
In addition, the company’s revenue from payment services to merchants grew 67% annually. 557 crore in Q1FY23, while its revenue from financial services and others grew by 393% YoY 271 crores.
As of June 30, 2022, the number of loans disbursed through the company’s platform increased to 8.5 million, representing an increase of 492% YoY and 30% QoQ.
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