Paytm shares at Rs 1,300? Jefferies initiates 'Buy' call, sees co in league of large profitable global fintechs
Jefferies said Paytm will turn profitable and be amongst the few large profitable fintechs globally that enjoy strong growth of over 30 per cent, double-digit Ebitda margins and stable profitability.
- Oct 19, 2023,
- Updated Oct 19, 2023 7:19 AM IST
Jefferies has initiated coverage on One 97 Communications Ltd (Paytm) with a 'Buy' rating and a target of Rs 1,300, as it sees India's leading payments player entering the league of large profitable fintechs globally. The foreign brokerage said Paytm, has accelerated monetisation of its large eco-system with ramp-up of credit business.
Continued momentum in credit originations and margin expansion in payments would upfront profitability ahead of market expectation, Jefferies said in its latest note. "In four quarters, Paytm will enter the global list of large profitable fintechs and valuations are yet to reflect its changed profile," it said.
Jefferies said Paytm will turn profitable and be amongst the few large profitable fintechs globally that enjoy strong growth of over 30 per cent, double-digit Ebitda margins and stable profitability.
It noted that its valuations at 3.6 times estimated FY25 EV/revenue remain at a 40 per cent discount to this group. Jefferies used the DCF valuation methodology with growth assumptions of near-term 27 per cent, long-term 17 per cent and terminal 8 per cent.
Jefferies is expecting sales growth to remain in the fast lane -- 31 per cent annually over FY23-26, driven by 55 per cent CAGR in financial services revenues (led by 4 times jump in credit originations) and 50 per cent CAGR in merchant subscription revenues on the back of aggressive deployment of merchant devices as Paytm asserts its market leadership.
"Contribution profits will outpace revenues as margins improve by 300 bps to 57 per cent, led by rising share of financial services in revenue mix and better core payments margins as share of credit-linked spends in non-UPI GMV increases," it said.
Jefferies said Paytm's lending partners remain in control of risk underwriting thresholds and given the short tenor of loans, are jointly creating a large base of credit-tested users. Delinquency trends, it said, have improved in BNPL where share of repeat users is 65 per cent.
As portfolio vintage grows, rising share of credit tested users in disbursals (from 50 per cent currently) will help control asset quality outcomes, Jefferies said.
"At our valuation, we get implied EV/revenue of 4.6 times and EV/adjusted Ebitda of 37 times (Sep'25). Using SOTP (for stake in associates), we arrive at a PT of Rs 1,300. Key risks are asset quality deterioration impacting credit business growth, supply pressure from PE selling and regulatory risks," it said.
Jefferies has initiated coverage on One 97 Communications Ltd (Paytm) with a 'Buy' rating and a target of Rs 1,300, as it sees India's leading payments player entering the league of large profitable fintechs globally. The foreign brokerage said Paytm, has accelerated monetisation of its large eco-system with ramp-up of credit business.
Continued momentum in credit originations and margin expansion in payments would upfront profitability ahead of market expectation, Jefferies said in its latest note. "In four quarters, Paytm will enter the global list of large profitable fintechs and valuations are yet to reflect its changed profile," it said.
Jefferies said Paytm will turn profitable and be amongst the few large profitable fintechs globally that enjoy strong growth of over 30 per cent, double-digit Ebitda margins and stable profitability.
It noted that its valuations at 3.6 times estimated FY25 EV/revenue remain at a 40 per cent discount to this group. Jefferies used the DCF valuation methodology with growth assumptions of near-term 27 per cent, long-term 17 per cent and terminal 8 per cent.
Jefferies is expecting sales growth to remain in the fast lane -- 31 per cent annually over FY23-26, driven by 55 per cent CAGR in financial services revenues (led by 4 times jump in credit originations) and 50 per cent CAGR in merchant subscription revenues on the back of aggressive deployment of merchant devices as Paytm asserts its market leadership.
"Contribution profits will outpace revenues as margins improve by 300 bps to 57 per cent, led by rising share of financial services in revenue mix and better core payments margins as share of credit-linked spends in non-UPI GMV increases," it said.
Jefferies said Paytm's lending partners remain in control of risk underwriting thresholds and given the short tenor of loans, are jointly creating a large base of credit-tested users. Delinquency trends, it said, have improved in BNPL where share of repeat users is 65 per cent.
As portfolio vintage grows, rising share of credit tested users in disbursals (from 50 per cent currently) will help control asset quality outcomes, Jefferies said.
"At our valuation, we get implied EV/revenue of 4.6 times and EV/adjusted Ebitda of 37 times (Sep'25). Using SOTP (for stake in associates), we arrive at a PT of Rs 1,300. Key risks are asset quality deterioration impacting credit business growth, supply pressure from PE selling and regulatory risks," it said.