Paytm share price: Citi recommends buying for long-term growth. Positive on 3 key verticals
- American financial services provider, Citi optimistic on Paytm's share price going forward. It believes the steep correction in Paytm since its IPO has made the stock attractive and it has priced most of its downside risks.
Paytm has continued to sustain growth in terms of payments and lending in February. In the first two months of Q4FY23, Paytm posted triple-digit growth of 286% YoY to ₹8,086 crore in loan disbursements, while its total merchant GMV came in at ₹2.34 lakh crore. The fintech giant has touched a new milestone in offline payments leadership, while its overall market share across digital payments to merchants has been steady. On an average basis, Paytm has also continued to expand its customer base. This has made American financial services provider, Citi optimistic on Paytm's share price going forward. It believes the steep correction in Paytm since its IPO has made the stock attractive and it has priced most of its downside risks.
On Wednesday, Paytm's share price traded at ₹577.55 apiece down marginally from the previous day's closing of ₹579.25 apiece on BSE. The company's market cap is around ₹37,502.31 crore.
During the February month alone, the company's loan distribution business with disbursements stood at ₹4,158 crore up by 254% YoY. While the company disbursed 4 million loans in February, rising by 86% YoY.
In its monthly performance report, Paytm stated that while it continues to witness accelerated growth with total disbursements through its platform, their payments consumer and merchant base offers a large addressable market, thereby providing a long runway for growth.
In its research report, Citi said, "Paytm’s Feb’23 operating metrics indicate sustained momentum in loan disbursals (+6% MoM by value) and device deployment (+0.3 million). Payment GMVs rose 39% YoY (MTUs: 85 million; flat MoM) and Paytm’s market shares in total UPI payments and digital merchant payments remained largely steady at 11% and 24%, respectively."
Further, based on RBI's payment statistics (Jan’23), Citi's report said, "we estimate the share of UPI in Merchant Digital Payments at c59% in Jan’23 (vs. c49% in Jan’22). Among other instruments, credit cards continue to see healthy growth (40%+ YoY across online and offline), although market share continues to shift towards UPI overall."
In overall UPI and also including Peer-to-Peer (P2P) payments, Citi's note added that Paytm’s market share stood at 11% in Feb’23 (+60bps YoY; +10bps vs 3QFY23 avg) whereas Paytm’s market share in overall digital payments to merchants (including other instruments like credit cards etc.) stood at c24%. The top 3 players’ market shares are steady at c95%.
Following this, giving an investment strategy, Citi's note said. "we rate One 97 Communications (Paytm) as Buy. We think Paytm has several existing and emerging levers to drive long-term platform stickiness (BNPL, Devices, etc.) and improve overall profitability (Financial Services) in the business. Paytm's key edge is its first-mover advantage on both sides of the payments ecosystem (71 million MTUs and 25 million merchants) which gives it a solid customer acquisition engine for new services – commerce, financial, or payments."
According to Citi, Paytm's stock has declined materially from its IPO price of Rs2,150/sh, partly in line with the fintech sector de-rating YTD, compounded by concerns on profitability in the core payments business and regulatory headwinds in India."
Citi believes that Paytm stock's valuations are attractive and are pricing in most of the downside risks.
Thereby, on valuation, Citi said, "We value Paytm on SoTP basis, assigning different multiples to the three key verticals. We value the Payments business on an EV/GP basis at 13.5x Sep'24E (at par with global payment companies on EV/GP basis; EV/S: 4x) resulting in Rs454/sh. We value the Financials Services business on EV/S at 12x (we expect higher profitability in the financial services vertical and in-line with global fintech offering similar services; multiple at 20% premium to global peers ) – Rs388/sh. We value the commerce and cloud vertical at 3x EV/S at the lower end of global e-commerce valuations – Rs85/sh."
Accordingly, Citi said, overall, this approach (+ net cash and investments) yields a TP of Rs1,061/sh on Paytm.
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.
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