Paytm shares at Rs 920? FY25 loss estimate tweaked; Buy stock, says Dolat Capital

Dolat Capital in its fresh note on One 97 Communications Ltd (Paytm) cited a number of developments that suggest a reduction of pain points and normalising prospects for Paytm across business segments. The brokerage said divestiture of the events business would result in a large, one-time gain, and the net effect would result in a substantially lower loss for FY25, compared to its earlier estimated losses.
The domestic brokerage said its checks suggested the completion of Paytm handle migration and clearing of regulatory overhang from FDI clearance for Payment Aggregator (PA) license.

"The UPI consumer data is indicating stability in market share, and expansion in partner network in financial distribution business, which adds further comfort that Paytm seems all set to achieve its guided path of turning Adjusted Ebitda break even by Q4FY25 (ex of UPI incentive), thereby implying a positive cashflow," it said. 

The Paytm business is resilient and well-poised to deliver robust growth, Dolat Capital said as it realigned its FY25 and FY26 estimates. The brokerage has maintained its ‘Buy’ rating on the stock with target price of Rs 920.

On Tuesday, the stock was trading 1.98 per cent higher at Rs 701.95. Dolat's target price on the stock suggests a potential 31 per cent upside over this price.

Dolat Capital said the change in revenue estimates incorporates multiple moving parts that comprise of a steady business prospects, supported by completion of transfer of payment handles leading to stable MTU base and GMV revival; and divesture of events and ticketing business. 

"The net effect would lead to lowering of our revenue estimates by 6.3 per cent/7.3 per cent for FY25E/FY26E but is not like-for-like comparable," it said.

In the case of adjusted Ebitda, the both events and movie ticket businesses were positive at Ebitda level and, therefore, the divesture would result in an uptick in loss for FY25 and lower Ebitda profit in FY26, it said.

"Divesture of events business would result in a large, one-time gain, and the net effect would now result in a substantially lower PAT loss for FY25E, compared to a loss in our earlier estimate. However, Adjusted PAT numbers for this one-time," Dolat Capital said.

Paytm, the brokerage said is poised for recovery after the disruption caused by PPBL and Postpaid impact. Despite challenges, the company continues to possess large number of use cases, huge customer base and robust tech platform, it said.

"Paytm remains in a bright spot of continued rapid growth in digital payments in India. We believe that the company has potential for growing its revenues multi-fold over next decade and is expected to deliver steadily growing profits FY26E onwards. We believe that DCF valuation is an ideal tool to value the real long-term potential of this business," it said.

Dolat Capital expects the Paytm business to turn PAT profitable in FY26E and reach a steady state EBIT Margin of 16.1 per cent over FY31-FY40E. It has factored in cost of capital of 12 per cent and terminal growth rate of 2 per cent (beyond FY40E).