Paytm shares get another ‘Buy’ call; Citi resumes coverage, finds valuations reasonable

After JP Morgan resumed coverage of Paytm shares earlier this month, now Citi has restarted its coverage of the fintech major.

paytm stock
So far this year, shares of Paytm have tanked more than 53% to now trade at Rs 615 per share. (Image: REUTERS)

Paytm (One 97 Communications) shares have got another bullish call from a global brokerage firm. After JP Morgan resumed coverage of Paytm shares earlier this month, now Citi has restarted its coverage of the fintech major, finding valuations reasonable and advising investors to buy the stock. The target price of Paytm shares has been increased to Rs 915 per share, up from Rs 910 apiece that was pinned by analysts earlier. Paytm stock has been a huge underperformer since listing last year. So far this year, shares of Paytm have tanked more than 53% to now trade at Rs 615 per share.

“We are resuming coverage of One 97 Communications (Paytm) following a brief period of internal restriction, and after the company’s 4QFY22 results,” Citi said in a report. They added that Paytm is showing steady improvement in payments monetization and scaling up financial services rapidly (focus on retention & upselling/partnerships). “We expect growth in fixed opex to meaningfully slow over FY23-24E; driving an Adjusted EBITDA breakeven by FY25E. At 6x FY24E EV/GP, valuations are relatively reasonable against peers.”

Analysts said that Paytm reported decent January-March quarter results. The brokerage firm highlighted three segments from the same. First was the strong payment gross margins at 10bps. Payment gross margins are steadily improving on account of improvement in overall monetization with payment revenues up 80% on-year basis. Further, analysts added that the financial services arm of Paytm continues to scale rapidly, with a strong focus on upselling. The post-paid acceptance network is at over 9 million; the customer base above 4 million.

“Overall, improvement in contribution margins (35% in 4Q; up from 21% in 4Q21) have been offset by higher fixed opex (+50% YoY in FY22); resulting in modest improvement in Adj EBITDA,” Citi said. They added that operating leverage should be more visible in FY23E for Paytm.

Between the current financial year and March 2026, Citi now expects Paytm’s gross profits to grow at 37% CAGR and contribution margins to expand from 30% in FY22 to 39% in FY26E.

Citi analysts said that Paytm stock currently trades at 6x FY24E EV/Gross Profits, a substantial discount to Zomato/Nykaa which trade at 10x/20x FY24E EV/GP. Reinitiating the coverage, the target price has been pinned at Rs 915 apiece, implying a 47% upside from the current market price of Paytm. Among risks to the upside are new the BNPL and Digital Payments regulations, competition in digital lending and sustainable scale-up of financial services, which is critical for profitability.

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