Paytm shares: Up 62% in 2023, can Q1 results give this new-age stock a lift?

Shares of One 97 Communications (Paytm) have rallied 61 per cent this calendar amid hopes of constant improvement in contribution margin and operating leverage, which may drive operating profitability. The stock has recently been in news following Paytm's business update. Ahead of its quarterly results, a few analyst targets on the stock suggests up to 45 per cent potential upside ahead.

In a note on July 10, Morgan Stanley said it expects the overall revenue growth (adjusted for UPI incentive) of 42 per cent for Paytm on YoY basis. On a sequential basis, it sees revenue growth should be at 11 per cent against 4 per cent last quarter. It expects payment and financial services (adjusted for UPI incentive) to grow 43 per cent YoY against 46 per cent YoY last quarter. Sequentially, it expects contribution margin (ex-incentive) to improve by 4 percentage points to 55 per cent and adjusted Ebitda margin to improve 60 basis points to 3 per cent for the quarter.

"We believe that after reporting adjusted Ebitda breakeven in Q3FY23, almost a year ahead of its guidance, Paytm is on track to report Ebitda breakeven in H2FY25. We raise our FY25E GMV and disbursement estimates by 5 per cent and 21 per cent, respectively, and estimate the mix of financial revenue to increase to 32 per cent  by FY25 from 19 per cent in FY23," Motilal Oswal said in a note while suggesting a target of Rs 1,050 on the stock.

Dolat capital has a price target of Rs 1,250 on Paytm. ICICI Securities sees the stock at Rs 1,055 while Axis Capital maintains its 'Buy' rating on the stock with target price at Rs 1,000. This is even as the stock is up 62 per cent year-to-date. On Thursday, the stock traded at Rs 860.35 on BSE, up 0.64 per cent.

Axis Capital said a healthy revenue growth and improvement in cash flow is likely to lead to a higher adjusted Ebitda. This brokerage pegged Paytm’s adjusted Ebitda at Rs 60 crore in Q1FY24 against Rs 52 crore in the March quarter.

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