Home / Markets / Stock Markets /  Paytm shares rise 32% from May record lows. JP Morgan sees stock hitting 1,000 by Mar-end

Paytm shares rise 32% from May record lows. JP Morgan sees stock hitting 1,000 by Mar-end

The shares currently are around  ₹675 levels and JP Morgan is overweight on Paytm. The American investment banker expects Paytm to regain its  ₹1,000 mark by March 2023-end. (REUTERS)Premium
The shares currently are around 675 levels and JP Morgan is overweight on Paytm. The American investment banker expects Paytm to regain its 1,000 mark by March 2023-end. (REUTERS)

  • In the past three trading sessions, Paytm shares have jumped nearly 6%.
  • Paytm shares had touched an all-time low of 511 on May 12, 2022. Since then, the shares have soared by over 32% as of now.

One 97 Communications aka Paytm shares extended its rally for the third consecutive day on Tuesday. The shares currently are around 675 levels and JP Morgan is overweight on Paytm. The American investment banker expects Paytm to regain its 1,000 mark by March 2023-end as the company's financial services business has scaled up and payments have reached a positive margin. While the funding winter in the fintech industry is likely to reduce competition for the company. Also, Paytm's Q2 earnings are likely to be key for gauging evidence of loss reduction and increasing confidence. From its record low in May, Paytm shares have skyrocketed by more than 32%.

On BSE, Paytm shares closed at 674.75 apiece up by 14.15 or 2.14%. The company even reached a high of 676.90 apiece in intraday trade. At present, the company's market cap is around 43,785.42 crore.

In the past three trading sessions, Paytm shares have jumped nearly 6%.

Paytm shares had touched a 52-week low of 511 on May 12, 2022. Since then, the shares have soared by over 32% as of now.

Although compared to its listing day, Paytm shares are still lower. Paytm made its market debut on November 18 last year. The shares had touched a 52-week high of 1,875 apiece on November 25, 2021. The company's IPO which was launched between November 8 to 10 last year, had received a subscription 1.89 times on the last day.

Should you buy Paytm shares?

According to JP Morgan analysts, Paytm's annualized loan disbursement run-rate stands at ~Rs290 billion as of Aug-22 and its penetration stands at 4% and <0.5% of MTU for postpaid and personal loans respectively, and 4% of device merchants for merchant loans (as at Jun-22). The company sees a long

runway for growth in the segment driven by the potential for 1) growth in its MTU (79mn as of Aug-22; +40% y/y) and device merchant (4.5 million as of Aug-22 – guided to add 1 million per quarter) base, and 2) increasing penetration among the base. The company also noted that its portfolio credit losses are running below levels underwritten by financing partners, which can additionally drive the scope for incentive income on its syndicated loan book.

In their latest research report, JP Morgan analysts further added that Paytm has been improving the margins of its payments business driven by 1) scale-up of merchant devices (driving rental revenue; ~12-15 month payback on its signature Soundbox device) and 2) rationalizing processing costs. Further tailwinds to margins exist from potential UPI P2M monetization either from MDR introduction (unlikely) or from increased subsidies from the government (currently at ~$200mn for the system) to support network investments. UPI’s P2M becoming monetizable via government rebate is a major mid-term positive for payment economics.

JP Morgan's analysts note said, competitive intensity could moderate in the payments/digital lending space from fintechs given the tightening of funding and regulatory hold in the sector. In their view, this could benefit Paytm as it is well funded to drive expansion and has also highlighted that it is compliant with the digital lending regulatory guidelines.

Furthermore, as per the analysts, Paytm's Q2 earnings will be key to seeing evidence of loss reduction and increasing confidence in the Sep-23 breakeven.

Analysts note said, "Paytm has been reinvesting gains in contribution margin back into marketing and its device business buildout which has limited its EBTIDA margin improvement. As the investments in business expansion are captured in the base, the increase in indirect expenses could moderate which could drive significant operating jaws in Adj. EBITDA losses. We think this will be key to Paytm achieving its guidance for Sep-23 Adj. EBITDA profitability."

On valuation, JP Morgan analysts note said, "We value PAYTM using a DCF valuation baking in rising cost of capital with a 18.5% COE and 20x exit multiple that implies a Rs1,000 PT. This is supported by a SOTP valuation benchmarking EV/Sales multiples to global peers at 4x/10x/4x/8x for its Payments/Financial Services/Commerce/Cloud businesses."

The target price of 1,000 on Paytm is set for March 2023-end.

In Q1FY23, Paytm's net loss widened to 644.4 crore from a loss of 380.2 crore in Q1 of last year. However, revenue from operations stood at 1,679.6 crore in Q1FY23 increasing by 88.55% yoy and 9% qoq.

During the first quarter, the company's GMV stood at 3 lakh crore rising by 101% yoy. Further, Paytm sustained growth in its monthly transacting users (MTU), which came in at 74.8 million growing by 49% YoY, driven by customer acquisition through UPI and expansion of its registered merchant base which was at 28.3 million (an increase of 6.5 million compared to 21.8 million in Q1 FY 2022).

Further, the company's revenue from Payment Services to Merchants grew by 67% yoy to 557 crore in Q1FY23, while revenue from its Financial Services and Others grew 393% YoY to 271 crore.

As of June 30, 2022, the number of loans disbursed through the company's platform grew to 8.5 million, representing a growth of 492% YoY and 30% QoQ.

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