Paytm climbs 4% as CLSA finds risk-reward favourable

Shares of One 97 Communications (Paytm) climbed 4 per cent in Tuesday's trade after foreign brokerage CLSA upgraded the stock's rating to 'Buy' from 'Sell', with a target of Rs 650.  With this, the stock has gained 9 per cent from its 52-week low of Rs 439.60 hit on November 24.

Over the past two weeks, CLSA said, Paytm’s share price has corrected 25-30 per cent on the back of selling by a large shareholder. "While our interactions with several investors over the past four months suggests some discomfort or uncertainty on scaling up the lending business, we think that the stock warrants a look now," it said.

The stock rose 3.69 per cent to hit a high of Rs 478.80 on BSE.

CLSA said the company has more than $1 billion cash on the balance sheet and cash burn should end in another 4-6 quarters. The Paytm stock trades at 16 times EV/core Ebitda on an FY26 basis, discounted back to FY24, it said.

"As a result, it trades at a 25-40 per cent discount to Adyen and Block’s EV/Ebitda multiples. We keep all our estimates and target unchanged," it said adding that the key near-term risk is continued selling by pre-IPO investors (which we cannot predict)," the foreign brokerage said.

CLSA said it derives comfort from nearly a third of market cap being attributable to cash on the balance sheet (Rs 9,200 crore). Paytm’s current market cap of $3.5 billion was last seen in 2016, it said, adding that there are a few disclosures that can be enhanced.

"Firstly, while Paytm gives broad data on lending, it should disclose segment-wise lending revenue and delinquency details every quarter, just like NBFCs do. Breakup of revenue from payment services to customers and merchants is welcome," it said.

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