Top brokerages like CLSA, BofA, Morgan Stanley, Goldman Sachs say Paytm’s core businesses payments & lending are working well and should scale up with time.
JM financial upgrades Paytm to BUY.
ICICI Securities said that Paytm has exceeded expectations in past few quarters and it remains “ahead of the guided timeline to achieve operating profitability.”
Paytm, India’s leading digital payments and financial services company and the pioneer of QR and mobile payment, recently held a meeting in Mumbai with top analysts. Post the company management’s strong presentation, Paytm has received a thumbs up from all major brokerages which was also seen in its share price on Friday, which was up by 5%.
Here’s a look at the top call for Paytm from analysts:
Gets another upgrade to BUY from JM Financials
The company has secured yet another ‘BUY’ rating from equity research firm JM Financial Institutional Securities Limited. The research firm has upgraded Paytm to a BUY rating at a target price of Rs 600. The upgrade comes after the company’s analysts meet in Mumbai.
JM Financial mentioned that Paytm’s risk reward is turning favourable and the management has provided insights into the business model across various segments. It further added that Paytm’s payments ecosystem, with presence across merchants and customers, acts as a robust customer acquisition, engagement and retention engine giving multiple customer journeys and monetisation opportunities.
“On our valuation metric of FY30E EBITDA discounted back to FY24E, Paytm is currently trading at 14x EV/ EBITDA which is in line with average valuation of global peers,” it added.
The brokerage firm added the company’s management has highlighted the large growth opportunity for the payments business in India with a potential of 100 million merchants and more than 500 million payment customers and opportunity to cross sell financial services and commerce business offerings to them. “The management also provided more granular details on the key revenue drivers across business segments and breakup of key costs and moderation trajectory, which in turn should help Paytm achieve adjusted EBITDA (ex ESOP costs) breakeven by FY24E,” said JM Financial.
Paytm expects to become cashflow positive in the next 12-18 months, says CLSA
Meanwhile, analysts at brokerage firm CLSA said Paytm expects to become cashflow positive in the next 12-18 months, which is “in line with our view of cash burn ending in the next 4-6 quarters”.
Elaborating on Paytm’s cashflow, the brokerage said, “We note that the company has more than US$1bn net cash (equating to more than 25% of its current market cap).”
CLSA maintains its ‘BUY’ rating for Paytm at a target price of Rs 650.
Paytm has exceeded expectations says ICICI Securities
ICICI Securities also came out with a note after the analyst meet, where it said that Paytm has exceeded expectations in the past few quarters and added that the company remains “ahead of the guided timeline to achieve operating profitability”. It also said that the company should start generating free cashflow (FCF) in the next 12-18 months.
In view of this, ICICI Securities has maintained a ‘BUY’ rating for the Paytm stock at a target price of Rs 1,285.
Net payment margins should remain broadly steady, says Morgan Stanley
Equity research firm Morgan Stanley also shared its views after the analyst meeting, where it said that the company’s management remains confident of strong growth as well as achieving its adjusted EBITDA breakeven target by September 2023.
Analysts at the brokerage also noted that the top management doesn’t see any significant risk to its payment margins with respect to regulations, adding that net payment margins should remain broadly steady. The brokerage added that the management also remains confident about Paytm’s loan distribution business, which has been gaining significant growth traction over the past few quarters.
The brokerage has maintained an ‘Equal-Weight’ rating for Paytm with a target price of Rs 695.
Paytm is sticking to its strengths, says BofA
Research firm BofA, which has a neutral rating for Paytm, said in its note that the key message from Paytm’s analyst day was that its core businesses payments and lending are working well and should scale up with time. The company intends to stick to its strengths like technology, distribution and collections. Mgmt is comfortable on its EBITDA breakeven target & generating cashflows earlier than expected.
More visibility into numbers and regulations; focus on FCF; Buy (on CL), says Goldman Sachs
Goldman Sachs in a note after the analyst meet said that the company provided incremental color around aspects such as PPBL’s user onboarding ban, Paytm’s lending customer base and partner strategy, impact on device rentals from competition, profitability drivers (tracking ahead of expectation), and clarity around certain other regulatory issues.
It said, “We are encouraged by new disclosures made by Paytm, the company’s focus on FCF and profitability, reducing competition in devices, and focus on aligning business with regulations.”