Paytm shares up 66% in six months; Emkay Global sees more upside potential
Paytm founder and chief executive Vijay Shekhar Sharma has reaffirmed the company's commitment to reapplying for a payment aggregator (PA) licence from Reserve Bank of India (RBI). "We will apply for the payment aggregator licence to the RBI in due course," Sharma said.
- Sep 24, 2024,
- Updated Sep 24, 2024 11:57 AM IST
Shares of One 97 Communications Ltd (Paytm's parent) climbed 3.31 per cent in Tuesday's trade to hit a day-high value of Rs 673.05. Last checked, the stock was trading 1.73 per cent higher at Rs 662.85. At this price, it has moved up 66.36 per cent in the past six months.
Emkay Global has upgraded Paytm's stock to 'Add' from 'Reduce' earlier with a revised target of Rs 750 per share, suggesting a potential upside of 13.15 per cent. "We upgrade Paytm to ADD, while elevating our DCF-based TP to Rs750/share (earlier Rs375), implying 3.6x/3x FY26E/27E EV/Operating revenue, as the easing regulatory stance should pave the way for approvals from NPCI/RBI to onboard new users/online merchants soon and, thus, drive business turnaround. This, coupled with strong cost optimization measures, should put Paytm on an early path to profitability. Management expects the loan distribution business to gradually reaccelerate, led by merchant loans with relatively better take rate/asset quality to do the heavy lifting in the near-to-medium term before PL and other products in the beta stage pick up pace," the domestic brokerage stated.
Emkay mentioned that Paytm's broking and insurance distribution business is gaining scale and has already turned profitable. "It has sold its operationally heavy entertainment business in Q2, which should boost cash buffers as well as reduce net loss in FY25E; it remains open to offload any other non-core business. Factoring in the higher cost optimization, we expect Paytm to again turn operating EBITDA (ex-ESOP and UPI incentive) positive by Q4 FY25E, when gradual business acceleration/reduction in ESOP costs should help it turn overall EBITDA/PAT positive by FY26E/FY27E (earlier FY27E/FY28E)," it added.
"Currently, Paytm trades at a premium (EV/TTM operating revenue: 4x) to profitable global paytech peers like PayPal/Paysafe (2.3x), given India's growth premium, as well as due to its differentiated loan distribution business; however, it is still at a discount to profitable BNPL players like Affirm (4.9x). Paytm’s further rerating will be contingent on faster recouping of lost consumer MTU, strong bounce-back in the lending business as partner/attrition issues ease, and no further regulatory disruption," Emkay further stated.
Paytm founder and chief executive Vijay Shekhar Sharma has reaffirmed the company's commitment to reapplying for a payment aggregator (PA) licence from Reserve Bank of India (RBI). "We will apply for the payment aggregator licence to the RBI in due course," Sharma said. This came after Paytm Payments Services Ltd (PPSL), a subsidiary of Paytm, secured approval from the government to invest further in its payment services business.
Last month, the digital payments firm sold its entertainment ticketing business to online food aggregator Zomato for Rs 2,048 crore. The fintech firm has been under tremendous pressure since the Reserve Bank announced restrictions on Paytm Payments Bank's operations last year amid persistent non-compliance and continued material supervisory concerns.
Shares of One 97 Communications Ltd (Paytm's parent) climbed 3.31 per cent in Tuesday's trade to hit a day-high value of Rs 673.05. Last checked, the stock was trading 1.73 per cent higher at Rs 662.85. At this price, it has moved up 66.36 per cent in the past six months.
Emkay Global has upgraded Paytm's stock to 'Add' from 'Reduce' earlier with a revised target of Rs 750 per share, suggesting a potential upside of 13.15 per cent. "We upgrade Paytm to ADD, while elevating our DCF-based TP to Rs750/share (earlier Rs375), implying 3.6x/3x FY26E/27E EV/Operating revenue, as the easing regulatory stance should pave the way for approvals from NPCI/RBI to onboard new users/online merchants soon and, thus, drive business turnaround. This, coupled with strong cost optimization measures, should put Paytm on an early path to profitability. Management expects the loan distribution business to gradually reaccelerate, led by merchant loans with relatively better take rate/asset quality to do the heavy lifting in the near-to-medium term before PL and other products in the beta stage pick up pace," the domestic brokerage stated.
Emkay mentioned that Paytm's broking and insurance distribution business is gaining scale and has already turned profitable. "It has sold its operationally heavy entertainment business in Q2, which should boost cash buffers as well as reduce net loss in FY25E; it remains open to offload any other non-core business. Factoring in the higher cost optimization, we expect Paytm to again turn operating EBITDA (ex-ESOP and UPI incentive) positive by Q4 FY25E, when gradual business acceleration/reduction in ESOP costs should help it turn overall EBITDA/PAT positive by FY26E/FY27E (earlier FY27E/FY28E)," it added.
"Currently, Paytm trades at a premium (EV/TTM operating revenue: 4x) to profitable global paytech peers like PayPal/Paysafe (2.3x), given India's growth premium, as well as due to its differentiated loan distribution business; however, it is still at a discount to profitable BNPL players like Affirm (4.9x). Paytm’s further rerating will be contingent on faster recouping of lost consumer MTU, strong bounce-back in the lending business as partner/attrition issues ease, and no further regulatory disruption," Emkay further stated.
Paytm founder and chief executive Vijay Shekhar Sharma has reaffirmed the company's commitment to reapplying for a payment aggregator (PA) licence from Reserve Bank of India (RBI). "We will apply for the payment aggregator licence to the RBI in due course," Sharma said. This came after Paytm Payments Services Ltd (PPSL), a subsidiary of Paytm, secured approval from the government to invest further in its payment services business.
Last month, the digital payments firm sold its entertainment ticketing business to online food aggregator Zomato for Rs 2,048 crore. The fintech firm has been under tremendous pressure since the Reserve Bank announced restrictions on Paytm Payments Bank's operations last year amid persistent non-compliance and continued material supervisory concerns.