Paytm share price target at Rs 1,200? What JPMorgan, CLSA, Citi, Goldman Sachs, BofA say

Shares of One 97 Communications (Paytm) fell over 3 per cent in Monday's trade even as the ew-age company reported narrowing of losses for the June quarter. Brokerage CLSA has upped its target on the stock to Rs 1,050 from Rs 850 earlier.

CLSA said while Paytm's gross merchandise value growth for the quarter was in line, the improvement in the net take rate was a surprise. It said Paytm’s Ebitda (excluding ESOP) was marginally higher than its estimate, with in-line revenue but lower processing costs.

Citi has upped its target on the stock to  to Rs 1,200 per share from Rs 1,160. Overall, gains in net payment margins more than offset lower lending distribution take-rates & higher fixed costs’ increase, it said.

Goldman Sachs said Paytm is firmly on track to be the most profitable India internet company starting FY25. it suggested a target of Rs 1,200 on the stock.

"Post Paytm’s March quarter results, some investors had expressed concerns about the decline in Paytm’s lending take rate, which saw a further moderation in June quarter to 3.5 per cent (from 3.8 per cent in March quarter). However, we note that Paytm’s consistently above expectation growth rate in disbursals has offset any impact of decline in take rates on revenues, and the company has guided for stable take rates from here on," Goldman Sachs said.

JPMorgan has suggested a target of Rs 950 on the stock. Key stock drivers from here are likely to be the clearance of regulatory overhangs and FCF & PAT breakeven, it said. "We think Paytm can be the first Indian B2C internet stock to trade on profit rather than revenue multiples," it said.

Meanwhile, BofA Securities suggested a target of Rs 1,020 on the stock.

Paytm said its net loss narrowed to Rs 357 crore for the quarter ending June 30, 2023. It reported net loss of Rs 644 crore in the year-ago period. Its revenue from operations rose 39 per cent to Rs 2,342 crore in Q1FY24 as compared to Rs 1,680 crore in Q1FY23.

Core business metrics were strong with gross merchandise value  growth of 37 per cent YoY and lending disbursements up 18 per cent QoQ, it said. The net take rate for payments came in at 16 basis points (bps) against 12-13 bps over the past few quarters, driven by a higher share of sound-box revenue and some benefits in BNPL.

CLSA said the take rate in lending further dipped 30 bps to 3.5 per cent but asset quality in lending is improving. The company is expanding its headcount for growth, leading to higher-than-expected Opex.

CLSA has increased its FY25-26 Ebitda estimates for Paytm by 9-12 per cent and its target price of Rs 1,050 suggests a 29 per cent potential upside over Monday's trading price of Rs 815.60.

CLSA said the take rate improved surprised it. "This was largely driven by higher rental income from sound-boxes (we estimate 17 per cent QoQ) and lower payment processing costs. The latter was driven by a higher share of UPI transactions, negotiating better transaction rates with banks & some benefits from buy now pay later. The number of sound-box devices reached 80 lakh."

"We think it would be possible to grow another 50 per cent or so from here, but it will be interesting to see if there is potential to scale this beyond 1 crore merchants (without compromising on rental income). In the non-financial services segments, revenue picked up slightly off a low base," CLSA said.

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