Paytm share price rallies over 3% as UBS initiates coverage with a ‘Buy’ call; sees EBITDA breakeven in FY25
Paytm share price traded over 3% higher on Tuesday as global brokerage firm UBS initiated coverage on the stock. Paytm shares gained as much as 3.73% to ₹742.20 apiece on the BSE.
UBS expects One 97 Communications, the parent company of fintech giant Paytm, breaking even on EBITDA in FY25 and reaching a 20% EBITDA margin by FY28. It views this as a key re-rating trigger, as seen at other new-age companies such as Zomato, where investors value profitable growth more than pure growth.
The foreign brokerage initiated its coverage on Paytm with a ‘Buy’ rating and a target price of ₹900 per share, implying an upside of 25.8% from Monday’s closing price.
Also Read: Jio Financial Services share price tanks over 6% after Q3 results
Paytm’s omni-channel payment business has earned it a 25% industry Gross Merchandise Value (GMV) share. Its large top-of-the-funnel payment business has accelerated monetisation across merchant devices and loans.
“We think regulatory issues have passed for payments and expect Paytm to benefit from a 24% CAGR in the payment player fee pool in FY23- 28E. Beyond payments, Paytm’s loan origination has grown 7x in FY22-24E, with lending partners rising to nine in FY24 from four in FY22,” said UBS.
UBS also likes Paytm’s merchant loan (ML) business, as its proprietary merchant data and daily settlement indicate early delinquency. Hence, it forecasts an overall revenue CAGR (Compounded Annual Growth Rate) of 21% for the company in FY24-28.
(Exciting news! Mint is now on WhatsApp Channels 
Further, it expects Paytm EBITDA margin to gradually reach 20% by FY28.
“Paytm’s profitability has progressed, with the contribution margin improving to ~55% of revenue in FY24 and EBITDA (ex-ESOP costs) turning positive. This has been aided by deceleration in payment processing fees growth (improving payment margin) and marketing-related costs (a combined 50% of costs),” UBS said.
The brokerage house forecasts the company to break even in EBITDA in FY25, aided by operating leverage and declining ESOP costs. It believes the market is overestimating the marketing cost requirements of the business, since most of Paytm’s customer acquisitions have been done. UBS’ FY26-28 EBITDA estimates are 8-14% above consensus.
Also Read: Angel One shares slump 12.5% to hit a 2-week low after Q3FY24 earnings
Moreover, UBS believes Paytm shares are trading at a discount to its global peers. Paytm stock is trading at 18x FY26E EV/EBITDA and FY26E 2.2x EV/net sales, at material discounts to global payment and Indian internet peers.
“We value Paytm’s core business on DCF (13.7% COE; 20% terminal EBITDA margin, similar to those of global payment incumbents; long-term growth in line with consumption growth). We view EBITDA break-even and EBITDA growth thereafter as a key re-rating trigger,” UBS said.
Paytm shares have rallied over 22% in the past one month, while the stock is up more than 34% in one year.
At 11:15 am, Paytm shares were trading 3.61% higher at ₹741.30 apiece on the BSE.
Catch Live Market Updates here
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it’s all here, just a click away! Login Now!
Download The Mint News App to get Daily Market Updates.
Published: 16 Jan 2024, 11:18 AM IST
