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Citigroup Initiates ‘Buy’ Rating On Paytm, Raises Target Price To INR 910 Per Share

Citigroup Initiates ‘Buy’ Rating On Paytm, Raises Target Price To INR 910 Per Share

We think Paytm has several potential levers to drive scale and improve profitability substantially, leveraging its high-frequency user base of 71 Mn Monthly Tracked Users: Citigroup

Paytm's full stack technology platform, integrated ecosystem and a customer base enables it to launch and scale new use cases rapidly, thereby potentially further expanding total addressable market: Citigroup

Indian tech stocks have been witnessing a major slump ever since Russia declared a war on Ukraine. The situation has further been compounded by a major correction in the US public markets as well as prospects of interest-rate hikes

In what appears to be some good news for Paytm after a long time, brokerage firm Citigroup has initiated a ‘buy’ rating on the fintech stock.

Citigroup has also raised its target price for Paytm by 32% to INR 910 per share.

The move was prompted by the overall positive numbers that Paytm has put up in the recent past. While the financial numbers have been dismal, Paytm continues to add more users and raked up higher payments GMV in the quarter ended – March 31, 2022. 

Citigroup, in its report, said, “We think Paytm has several potential levers to drive scale and improve profitability substantially, leveraging its high-frequency user base of 71 Mn Monthly Tracked Users (up 41% year-on-year in FY22) and more than 25 Mn merchants.”

“Paytm’s full stack technology platform and integrated ecosystem and customer/merchant base enables it to launch and scale new use cases rapidly, thereby potentially further expanding total addressable market (TAM),” it added.

Paytm is one of the biggest players in the digital payments space. It claimed to have more than 69.5 Mn average monthly transacting users in Q4 FY22, the third highest in the country.

The brokerage’s report said, “We expect payments GMV to grow at 44 % CAGR over FY22-26E to $500 billion and overall revenues (including financial services) to reach $2.1Bn, a 32% growth CAGR.”

The development comes at a time when Paytm stock has been under tremendous selling pressure. The stock has tanked more than 70% since its listing at INR 2,150 in November last year. On Monday (April 18), Paytm shares fell 4.08% to settle at INR 663. The company’s scrip had hit a record low of INR 524.30 late last month.

The decline in the share price has predominantly been caused by concerns about profitability and over-valuation of the startup. The situation has been complicated by a slew of regulatory issues the fintech major is facing. In March this year, RBI barred Paytm Payments Bank from onboarding new customers and ordered a sweeping system audit of the startup. 

Despite all this, Citigroup is bullish on the fintech major. The brokerage said that these views are too pessimistic, adding that at the current market price, Paytm’s valuations looks attractive.

The bloodbath on Dalal Street has hit other new-age Indian tech startups as well. Shares of Zomato ended 1.13% lower at INR 82.95 on Monday, less than half of its all-time high of INR 169.10.

Indian tech stocks have been witnessing a major slump ever since Russian President Vladimir Putin declared a war on Ukraine. The situation has further been compounded by a major correction in the US public markets as well as prospects of interest-rate hikes.

The negative sentiments on Dalal Street have made many startups planning to get listed this year apprehensive. Earlier, media reports said that ecommerce logistics startup Delhivery will delay its IPO by a few weeks amidst market volatility. If media reports are to be believed, OYO too is planning to postpone its IPO and slash its valuation.