Paytm Shares Rally 4% After UBS Forecasts Its EBITDA Breakeven In FY25

Global brokerage firm UBS Securities has projected that payments aggregator Paytm is poised to reach breakeven on EBITDA by the financial year 2024-2025 (FY25), with expectations to attain an EBITDA margin by FY28.

The brokerage firm anticipates that Paytm’s top line will experience a compound annual growth rate (CAGR) of 21% from the financial year 2024 to 2028.

Shares of Paytm jumped as much as 4% to INR 746.4 during the intraday trading on the BSE on Tuesday (January 16).

The brokerage has initiated coverage on One97 Communications Ltd (Paytm) with a ‘Buy’ call and a target price of INR 900, implying a potential upside of 26% from Monday’s (January 15) closing levels.

UBS holds the belief that sustained monetisation efforts and the achievement of break-even in EBITDA will be key drivers for a re-rating of the company’s stock.

“Paytm’s omni channel payment business has earned it a 25% industry GMV share. Meanwhile, its large top-of-the-funnel payment business has accelerated monetisation across merchant devices and loans,” UBS stated in a report.

UBS considers Paytm a payment industry leader with robust merchant and customer engagement. The brokerage’s EBITDA estimates for FY 2026-2028 surpass consensus estimates by 8% to 14%.

Besides, the company’s loan origination surged 7X during FY22-FY24, accompanied by an increase in lending partners from four in FY22 to nine in FY24.

UBS expressed positive sentiments towards Paytm’s merchant loan (ML) business, citing early delinquency indications from proprietary merchant data and daily settlements. Factoring this in, the firm predicts a 21% Compound Annual Growth Rate (CAGR) for the company’s overall revenue in FY24-28.

Additionally, UBS underscored the discounted valuations offered by Paytm in comparison to global and Indian peers, considering it a positive aspect for the company.

Recently, One97 Communications Ltd secured a spot in BofA Securities’ list of top 10 short-term recommendations in the Asia Pacific region for the first quarter of 2024.

BofA reiterated its ‘buy’ rating on One97 Communication with a price objective of INR 1,165.

In 2023, Paytm’s shares surged over 80%, driving up its market capitalisation beyond $7 Bn, thanks to improved financials and a strong loan disbursement business. However, the stock lost the momentum following Paytm’s decision to scale down its postpaid loan vertical. By December 2023, its market capitalisation declined back to around $4 Bn.

Last month, Paytm fired hundreds of employees citing the increasing usage of artificial intelligence-led automation.

Paytm reported a 49% year-on-year (YoY) decline in consolidated net loss to INR 291.7 Cr in the September quarter (Q2) of the financial year 2023-24 (FY24), helped by an increase in merchant subscription revenue, steady GMV growth, and rise in loan disbursements.