Paytm Jumps 8% Intraday On Positive Commentary By Brokerages On Growth Trajectory

Shares of Paytm jumped over 8% to INR 543.45 during the intraday trade on the BSE on Friday (December 2) after several brokerages reiterated their confidence in the stock after the fintech giant’s meeting with analysts and investors on Thursday. 

After the meeting, brokerage JM Financial upgraded Paytm shares to ‘buy’ from ‘sell’ and maintained its price target (PT) of INR 600, implying an upside of almost 12% to the stock’s last closing price. 

Paytm outlined its key growth drivers and said that it would focus on growing its lending business. Speaking about the meeting, JM Financial said that Paytm provided more granular details on the key revenue drivers across its business segments and the breakup of its key costs and moderation trajectory, which should help it achieve adjusted EBITDA (ex ESOP costs) breakeven by FY24.

In an investor presentation uploaded on the exchanges, Paytm said that the cost of building the platform stood at INR 401 Cr in Q2 FY23 and is expected to increase 10%-15% year-on-year (YoY) on the current base. On the other hand, the cost of expanding its platform through marketing and sales, which is directly driven by revenue opportunity in the market, stood at INR 309 Cr during the September quarter.

Speaking about its improving business metrics, JM Financial said, “While we have remained cautious on Paytm’s business model since our initiation given the high cash burn, risk on take rates in financial services business and long road to profitability, its operating metrics are gradually improving (net payment margin, ramp up of financial services) with management’s focus on increasing efficiencies and profitability, which in turn should aid Paytm achieve EBITDA breakeven by FY26E, in our view.” 

Meanwhile, ICICI Securities said that Paytm’s clarifications around regulatory developments during the meeting, which signified no onerous outcome, further provided comfort to the analysts.

The brokerage maintained its ‘buy’ rating on the stock with an unchanged PT of INR 1,285 based on customer lifetime. ICICI Securities’ PT implies an upside of almost 140% to the stock’s last close.

Brokerage CLSA, which recently initiated its coverage on Paytm with a ‘buy’ rating, said the startup’s outlook to become free cash flow positive in the next 12-18 months is in line with its view of it ending cash burn in the next 4-6 quarters.

The positive commentary by the brokerages comes as a shot in the arm for Paytm. The stock has been under pressure in the recent months due to various regulatory uncertainties, overall scepticism about tech stocks globally, business-specific volatility, and the expiry of its lock-in period last month.

The Reserve Bank of India (RBI) refused to allow a payment aggregator licence to Paytm last week following which Morgan Stanley said that it would be closely monitoring the central bank’s actions on the fintech startup.

Paytm reported a 21% YoY increase in its loss to INR 571 Cr in Q2 FY23, while it declined 11% on a sequential basis. 

Shares of Paytm ended Friday’s session at INR 536.90 on the BSE, up 7.06% from Thursday’s close.