77% upside! Analysts bullish on Paytm ahead of Q3 results; here’s why

Analysts on Dalal Street believe that Paytm may report double-digit YoY revenue growth for the quarter ended December 31. An assessment by Dolat Capital showed that the leading digital payments platform may post 35.10 per cent year-on-year (YoY) and 10.70 per cent quarter-on-quarter (QoQ) growth in revenue in Q3FY24. It further estimated that the net loss of the company narrowed down to Rs 255.30 crore, led by improved overall operating performance. The company posted a loss of Rs 290.50 crore in the preceding quarter ended September 2023 and a loss of Rs 392 crore in the corresponding quarter ended March 2023. 

Investors should zero in on the update on loan business, merchant business and consumer payment business scale-up in the forthcoming result of Paytm. Dolat Capital further estimated that Paytm may post an EBIT loss of Rs 397.70 crore in Q3FY24 against an EBIT loss of Rs 411.1 crore in Q2FY4 and an EBIT loss of Rs 454.70 crore in Q3FY23. The company is slated to announce its Q3 results on January 19. 

“Paytm’s Q3 will see festive season-led strong payments business growth while optimising operational performance,” Dolat Capital said in a report while maintaining a ‘Buy’ rating on Paytm with a target price of Rs 1,320. This indicates an upside of 77 per cent against the current market price of Rs 743.95. 

On the other hand, YES Securities also projected 32 per cent YoY and 8.1 per cent QoQ growth in revenue of Paytm in Q3FY24. On the other hand, it sees Paytm’s loss at Rs 280 crore during the quarter under review. 

“We assume 6 per cent QoQ growth in payments services to consumers, 12 per cent QoQ growth in payments services to merchants and 6 per cent QoQ growth in financial services and others and arrive at an overall growth in revenue from operations of 8.1 per cent QoQ. We forecast payment processing charges (PPC) as a proportion of payments revenue to be at 54.5 per cent, a metric that was 54.4 per cent in 2QFY24. We arrive at a total expenses (ex PPC) growth of 6 per cent QoQ, compared with a growth of 3 per cent in 2QFY24, resulting in an EBITDA margin (ex-Other Income and after ESOP cost) of -8.3 per cent, an improvement of 89 bps QoQ,” YES Securities said. The brokerage has ‘Add’ rating on Paytm with a target price of Rs 775. 

On the other hand, UBS on January 15 initiated coverage on Paytm with a target price of Rs 900. The global firm in a report said that Paytm’s strong top-line CAGR of 54 per cent in FY21-24E has been driven by its core payment business and supported by device and loan origination monetisation. Its profitability dynamics have also improved, with its contribution margin rising to 50 per cent of revenue and positive EBITDA (ex-ESOP costs). We expect a moderating 21 per cent top-line CAGR in FY24-28 while operating leverage plays out as marketing expense requirements ease and ESOP costs moderate. As a result, we forecast the company breaking even on EBITDA in FY25 and reaching a 20 per cent EBITDA margin by FY28. 

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