Paytm shares: CLSA ups stock target to Rs 1,200, says fall in lending take rate arrested

CLSA has upped price target for One 97 Communications Ltd (Paytm) to Rs 1,200 from Rs 1,050 earlier, as it felt that lower-than-expected Opex in the September quarter drove better-than-expected adjusted Ebitda. The foreign brokerage has increased its Ebitda estimates by 12-13 per cent on the back of stronger gross merchandise value (GMV).

For Paytm, the good thing is that the decline in the lending take rate seen over the past three quarters has been arrested, CLSA said. 

"In line with the prior two quarters, GMV growth for Paytm was 40 per cent YoY in Q2. The net take rate was sequentially stable at 15 bps. The number of devices increased 15 per cent sequentially and has nearly doubled over the past year to 9.2 million. We believe the gross payment revenue contribution of these devices is 17-18 per cent," CLSA said.

CLSA noted that Paytm has rolled-out variations of the soundbox: card soundbox, pocket soundbox and music soundbox, given the importance of these devices and that the Vijay Shekhar Sharma-led company also mentioned, without quantifying, that credit cards on its UPI platform is seeing good traction by customers.

CLSA said Paytm’s lending distribution growth slowed to 9 per cent sequentially, which was in line with guidance, as the company, and its lenders, tightened underwriting norms. This, CLSA said, was prominent in personal loans where lenders trimmed low-ticket, short-term personal loans.

"When the environment improves, we think Paytm can again push the pedal on growth. The company also added Tata Capital to its list of lender partners. The take rate was stable at 3.5 per cent after having declined from 4.8 epr cent the prior three quarters. Management believes this could improve by 10-15bps hereon. On the asset quality front, management commented the merchant loan ECL had improved by 25bps," CLSA said.

The foreign brokerage said fixed non-employee expenses for Paytm were flat sequentially, leading the Ebitda beat.

"Employee expenses continue to rise, though, due to manpower expansion. Cloud and commerce revenue were tepid, having grown only 12 per cent YoY to Rs 420 crore. We increase our adjusted Ebitda estimates over the medium-term by 12-13 per cent driven by an increase in GMV growth and accordingly increase our target price to Rs 1,200. The implied EV/Ebitda on FY26/27 basis is 25 times/17 times at our target price," CLSA said.

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