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Business News/ Markets / Stock Markets/  Paytm share price extends rally as BofA Securities upgrades the stock, expects 24% upside
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Paytm share price extends rally as BofA Securities upgrades the stock, expects 24% upside

BofA Securities believes Paytm’s operational leverage has room to surprise and sees the company’s margins improving on back of revenue mix shiſt towards high margin Soundbox & lending revenues.

Paytm share price has rallied more than 50% this year so far, but is still significantly lower than its IPO price. (Bloomberg)Premium
Paytm share price has rallied more than 50% this year so far, but is still significantly lower than its IPO price. (Bloomberg)

Paytm share price rallied over 4% on Friday, extending its rally for the third consecutive session amid upbeat sentiment. The stock price of One 97 Communications, the parent company of Paytm, rose as much as 4.8% to an intraday high of 809.45 apiece on the BSE. The stock witnessed more than 6% gains in the previous session.

The rally in Paytm shares comes after the company got a ratings upgrade from Bank of America Securities as it finds risk-reward turning more positive for the stock. 

BofA Securities upgraded Paytm to ‘Buy’ from ‘Neutral’ and increased the target price to 885 per share from 780 earlier on the back of strong revenue momentum and operational leverage.

It finds Paytm well positioned to continue to dominate the SME merchant landscape where the subscription model via Soundbox is improving merchant stickiness.

“We expect Paytm’s momentum in BNPL (buy now pay later)/merchant lending to continue, albeit at a slower pace, leading to 34% revenue CAGR from FY 23-26," Bank of America Securities said in a report.

Also Read: Paytm share price surges 8%; brokerages remain upbeat about the stock

It believes Paytm’s operational leverage has room to surprise and sees the company’s margins improving on back of revenue mix shiſt towards high margin Soundbox & lending revenues.

“We estimate adjusted EBITDA margins to improve from -2% in FY23 to 8% by FY26. In fact, we think operational leverage could further surprise both on our and consensus estimates," the brokerage house said.

BofA Securities also said that the company is in a “sweet spot" with limited competition as in the last six months, competitive intensity has fallen further with most Fintechs struggling due to funding winter, stricter RBI norms and declining discounts.

Also Read: Shankar Sharma portfolio stock hits upper circuit for fourth straight session. Share jumps 90% in one month

It sees limited competition for Paytm in its soundbox business as well as in the BNPL/merchant lending space.

Most brokerages have turned bullish on the stock amid encouraging positive cycle of customer growth, retention and cross-sell playing out for the company. 

Analysts believe the new technologically-advanced platform with focus on artificial general intelligence (AGI) could be a strong lever ahead, while increasing monetisation of the UPI platform and introduction of credit cards in UPI could lead to positive surprises ahead.

In its operational performance update, Paytm said it continued witnessing the expansion of the consumer base with average monthly transacting users (MTU) at 9.2 crore for the quarter to date (average for April and May 2023), up 24 per cent year-on-year (YoY).

Meanwhile, during the quarter ended March 2023, Paytm's consolidated net loss narrowed sharply to 168.4 crore from 761.4 crore in Q4 of the previous year, aided by an increase in GMV, higher merchant subscription revenues, growth of loans disbursed, and full years’ UPI incentives reported during the quarter.

Its revenue from operations increased 51.5% to 2,334.5 crore in Q4FY23, from 1,540.9 crore in Q4FY22.

Paytm share price has rallied more than 50% this year so far, but is still significantly lower than its IPO price.

At 10 am, the shares of One 97 Communications were trading 3.98% higher at 803.10 apiece on the BSE.

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Disclaimer: The views and recommendations given in this article are those of individual analysts and brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Updated: 09 Jun 2023, 10:12 AM IST
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