JPMorgan, which on November 9 upped the price target for One97 Communications (Paytm) to Rs 1,100 from Rs 1,000 earlier, maintained its 'Overweight' rating on the stock after hosting Paytm President and Group CFO Madhur Deora at the JP Morgan Global TMT conference.
In a note on Friday, JPMorgan said Paytm is the leading 'fintech horizontal' in India, having built more sources of monetisation across payments, commerce and financial services than all of its competitors. This, it argues, gives it the unique ability to drive monetisation and profits across several segments at lower CAC (customer acquisition cost) than peers’.
"We expect Paytm to see strong revenue growth across all its business segments, thanks to device monetisation in payments, financial services cross-selling, ticketing recovery and rising ad monetization. We see revenues growing at a over 44 per cent CAGR over FY22-26, to $2.7 billion, and CMs rising to 48 per cent by FY26. We see Paytm retaining the highest revenue and profit levels among local vertical and global horizontal peers," it said.
JPMorgan said one of the key drivers of margin expansion for Paytm's payments business has been scaling up of device subscriptions that increased to 48 lakhs in September quarter and 51 lakh in October 2022 compared with 10 lakhs in the September quarter of last year.
"This has also driven higher LTV for merchants from reducing churn and growing TAM for merchant loans subsequently," it said.
Paytm, JP Morgan said, highlighted that the scale up of the lending business is running ahead of plan despite its focus on credit quality. A greater incoming demand for loans means Paytm has the leverage to be selective that benefits both Paytm as well as partner banks, it said.
There is significant room ahead for expansion as the penetration in lending remains low at 4 per cent of MTU for Paytm Postpaid and an even lower 0.5 per cent for personal loans while on the merchant side it is 4.4 per cent for devices merchants, JP Morgan added.
"We remain OW on the stock and believe continued indirect cost control (marketing, sales and cloud costs) remains key to achieve adjusted Ebitda breakeven by September 2023," it said.
Lower-than-anticipated growth in MTU (monthly transacting users) and GMV/MTU, lower-than-anticipated growth in loans and the risk of unestablished portfolio credit behaviour and a diverse regulatory risks to payment MDRs and restrictions on digital lending remain a few risks to JP Morgan's rating and price target on the stock.
On Friday, the scrip was trading at Rs 543.65, up 0.73 per cent. JP Morgan's target suggests a 102 per cent potential upside for the stock.
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