Paytm to enter league of large profitable fintechs in four quarters, says Jefferies; expects 37% upside | Mint
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Business News/ Markets / Stock Markets/  Paytm to enter league of large profitable fintechs in four quarters, says Jefferies; expects 37% upside
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Paytm to enter league of large profitable fintechs in four quarters, says Jefferies; expects 37% upside

Paytm has accelerated monetization of its large ecosystem with ramp-up of credit business. Continued momentum in credit originations and margin expansion in payments will upfront profitability ahead of market expectation, Jefferies said.

Paytm shares have rallied more than 79% year-to-date (YTD) and the stock is up more than 46% in one year. (Image: Bloomberg)Premium
Paytm shares have rallied more than 79% year-to-date (YTD) and the stock is up more than 46% in one year. (Image: Bloomberg)

Fintech major Paytm is expected to enter the global list of large profitable fintechs in four quarters and its share price is yet to reflect the company’s changed profile, according to global brokerage house Jefferies.

Jefferies has initiated its coverage on One 97 Communications, the parent company of Paytm, with a ‘Buy’ rating and a target price of 1,300 per share, implying an upside of over 37% from Wednesday’s closing price.

India's leading payments player, Paytm has accelerated monetization of its large ecosystem with ramp-up of credit business. Continued momentum in credit originations and margin expansion in payments will upfront profitability ahead of market expectation, Jefferies said. 

“In next 4 quarters, Paytm will turn profitable and be amongst the few large profitable fintechs globally that enjoy strong growth (>30%), double-digit EBITDA margins and stable profitability. However, its valuations at 3.6x FY25 EV/revenue remain at a 40% discount to this group," Jefferies said.

Also Read: Bajaj Auto share price rallies 4% to hit 52-week high after strong Q2 results; Should you buy?

With just 5% user penetration, Paytm’s loan disbursals have surged 10x to over $8 billion. In payments, revenues expanded around 2.5x with ramp-up in merchant subscription business and margins jumped 20pp, led by industry tailwinds and management shedding unprofitable lines. 

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In 2 years, Paytm's revenues have jumped 3x, gross margins surged to 54% (from 13%) and placed the company on a path to profitability, according to Jefferies.

It expects revenue growth to remain in the fast lane (31% CAGR over FY23-26E) driven by 55% CAGR in financial services revenues led by 4x jump in credit originations, and 50% CAGR in merchant subscription revenues on the back of aggressive deployment of merchant devices (~3x network expansion) as Paytm asserts its market leadership. 

Moreover, contribution profits are expected to outpace revenues as margins improve by 300 bps to 57%, led by rising share of financial services in revenue mix, and better core payments margins as share of credit-linked spends in non-UPI GMV increases.

Also Read: Paytm share price: Goldman Sachs gives 'buy' tag, predicts 30% upside in long term

Earlier, Goldman Sachs had raised target price on Paytm shares as it believed the payments company could be the most profitable among India's internet companies.

Paytm share price has witnessed strong buying momentum after hitting a life-time low of 439.60 apiece on BSE led by robust bottom fishing by value pickers. Paytm shares have rallied more than 79% year-to-date (YTD) and the stock is up more than 46% in one year. 

At 10:10 am, Paytm share price was trading 2.08% higher at 967.80 apiece on the BSE.

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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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Published: 19 Oct 2023, 10:12 AM IST
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