Bull run on Paytm shares:
On Thursday, Paytm shares closed at ₹809.55 apiece up by ₹5.40 or 0.67%. The shares have touched an intraday high of ₹825.25 apiece - resulting in a rise of over 2.6% in the day.
The company's market capitalisation is around ₹52,527.71 crore at the current closing price.
So far in 4 trading sessions this week, Paytm shares have climbed by 22.30% or ₹150.5 taking in consideration the latest day's high. Last week, on Friday, the shares were around ₹674.75 on BSE.
Q1FY23 preview:
For Q1FY23, Manish Aduki, Rahul Jain, and Harshita Wadher analysts at Goldman Sachs said, "Paytm’s operating performance has consistently remained strong, and we are forecasting a third consecutive quarter of c.90% YoY revenue growth for the company in 1QFY23 (+10% qoq), with adjusted EBITDA losses further narrowing by 13% qoq to Rs3.2 billion."
Rahul Jain and Pranav Mashruwala analysts at Dolat Capital said, "Operating Metrics in Q1FY23 such as GMV/MTU/Devices/Loans are up 101%/49%/301%/779% on YoY basis suggesting sustained high growth momentum with rising contribution profit."
Earlier, Paytm had announced its provisional data for Q1FY23 under which its disbursements crossed an annualised run rate of ₹24,000 crore on the platform.
Further, in Q1FY23, the fintech has disbursed loans of 8.5 million in volume terms higher by 492% yoy, while the value of loans disbursed grew by 779% yoy to ₹5,554 crore ($703 million). Also, the company posted strong growth in total merchant payments volume as its GMV came in at ₹2.96 lakh crore ($37 billion), marking a 101% yoy growth in Q1FY23.
Meanwhile, the company continued to hold its leadership with the deployment of 3.8 million devices at merchant stores across the country.
In annual report of FY22 which was released last week, Vijay Shekhar Sharma CEO and founder of Paytm said, "over the past year, our team has done a great job in massively improving our revenues and contribution profits, which allows for investments in our payments and credit businesses while at the same time reducing our EBITDA losses. We are seeing excellent momentum in our businesses and are on track to achieve operating profitability (EBITDA before ESOP cost) by the quarter ending September 2023."
What's the long-term picture?
In long term, the analysts believe Paytm is firmly on track to achieve EBITDA profitability by end of FY24 (company guidance Sep ’23), while growing topline at a 38% FY22-25E CAGR, at the higher end.
According to Manish Shukla, Chirag Gandhi, and Mitesh Gohil analysts at Axis Capital said, Paytm is one of the largest payments platforms in India, with a Gross Merchant Value (GMV) of ₹8.5 trillion in FY22 (+111% YoY). Even as the share of UPI GMV increases, a healthy growth momentum in non-UPI GMV (+20% CAGR over FY22-27E) and higher penetration of subscription fee-yielding devices (soundbox, POS machines) in its merchant base should drive payments revenue. Reduction in payment processing charges (scale and efficiency-driven benefits) should drive a positive net take rate in the payments business.
In their note, Axis Capital analysts said, Paytm has rapidly scaled up its financial services business during the last couple of years.
At present, the penetration of post-paid loans is just ~2% of monthly users and merchant loans are just ~0.4% of number of merchants; this offers significant growth potential for loans.
Initial offtake has been encouraging (+5.4x YoY growth in value of loans disbursed in FY22). Axis analysts said, "We expect financial services revenue to post ~58% CAGR over FY22-27."
On long-term profitability, the Axis analysts note said, "We estimate contribution margin to increase to 47% of revenue by FY27 vs. 30% in FY22, driven by the increasing share of higher margin revenue from financials services (~20% of FY27 revenue vs. 8.8% in FY22). We expect adjusted EBITDA (EBITDA before ESOP cost) to break even by Q4FY24E (vs. company guidance of Q2FY24E) driven by higher contribution margin and moderation in indirect costs helped by scale-based efficiencies."
That said, the analysts at Axis Capital have given a 'Buy' rating on Paytm. They said, "We value Paytm using DCF (with explicit adjustment for ESOP cost), which gives us a TP of ₹940. We assume a WACC of 13.0% and terminal growth rate of 5% at the end of 10 years."
Among the key risks are adverse regulatory changes for fintechs on payments and lending, an increase in competitive intensity, and the inability to moderate customer acquisition costs.
Axis Capital has joined the list of brokerages that are optimistic about Paytm. Other brokerages are Goldman Sachs, JP Morgan, Citi, and Dolat Capital.
Goldman analysts have set a 'Buy' rating with a target price of ₹1,050 on Paytm.
On the other hand, analysts at Dolat said, "Maintain our Buy rating on the stock with a DCF-based TP of Rs.1,400 (implies 8.8x/6.3x on FY24/FY25E EV/Sales)."
