Paytm Slips 5% After Q1 FY24 Show, But Brokerages Remain Bullish

Following its Q1 FY24 results, shares of the fintech major, Paytm, tanked 5% to close at INR 801.80 on the BSE on Monday (July 24). 

After staying steady in the opening hours, investors reacted sharply to the fintech startup’s quarterly results, and the stock hit an intraday low of INR 795.60 on the BSE. 

It is pertinent to note that Paytm’s quarterly losses doubled sequentially, even though it managed to narrow its yearly losses by nearly half to INR 358.4 Cr during the quarter under review. 

Moving on, more than 2.27 Lakh shares of Paytm exchanged hands during the day, compared to the two-week average volume of 1.62 Lakh shares. The startup’s market capitalisation stood at INR 50,852.59 Cr at the closing bell on Monday. 

Meanwhile, analysts continue to be bullish on the fintech major. Brokerage firms, including Goldman Sachs, Citi, YES Securities, JM Financial and CLSA, have given a BUY rating to the Paytm stock on the back of an improved adjusted EBITDA and healthy growth in business metrics and its loan business. 

In Q1 FY24, Paytm’s revenues zoomed 39% YoY to INR 2,342 Cr. The number of merchants registered on the platform grew 25% to 3.56 Cr in the quarter that ended June 2023, compared to 2.83 Cr a year ago. 

Not just this, merchant transactions on the platform jumped 55% YoY to 796 Cr while the number of payment devices deployed doubled YoY to 79 Lakhs. Paytm also disbursed 1.28 Cr loans worth INR 14,845 Cr in Q1 FY24.

Analysts Are Bullish On Paytm

Brokerage firm JM Financial has raised the target price on Paytm to INR 1,060, compared to INR 855 earlier, citing its ‘demonstrable’ ability to slash payment processing charges and a strong increase in the lending distribution business.

“We maintain our positive stance on the stock and now see greater visibility on Paytm’s ability to sustain higher take rates on payments business for a larger time frame and a continued momentum in the loan distribution business along with better performance metrics. We maintain our BUY rating with a revised target price of INR 1,060,” said JM Financial. 

CLSA has also given a thumbs up to the fintech major, raising its target price to INR 1,050 from INR 850 and maintaining a BUY rating on the stock. However, the brokerage flagged the rising fixed costs, up 14% QoQ and 26% YoY, noting that the company continues to increase its workforce. 

“We understand the need to capture growth opportunities, but we struggle to understand what the company will do with so many employees in five years. Lastly, we increase our core EBITDA estimates 9%-12% to factor in healthy business growth and higher net take rates… We expect the company to generate free cash flow over the next few quarters,” CLSA said in a note. 

Similarly, Citi has also maintained a BUY rating on the stock and raised the target price of the fintech stock to INR 1,200. While lauding the lower interchange expenses on the payments side which led to the expansion of adjusted EBITDA, Citi noted that the growth momentum was ‘offset’ by higher fixed cost overheads. 

Reacting to Paytm’s Q1 FY24 results, Goldman Sachs said that the fintech startup made ‘further improvement’ in expected credit loss (ECL) and bounce rates in its buy now pay later (BNPL) portfolio. Goldman Sachs also noted that the high-margin payments devices vertical continues to surprise on the upside.

While noting that the company could turn cash flow positive by the year-end, Goldman Sachs maintained a BUY rating on Paytm and raised the target price to INR 1,200.

However, Macquarie remained on the edge, as it maintained a neutral stance on the stock with a target price of INR 800 a share. 

While calling Paytm’s Q1 FY24 a ‘decent quarter’ with its hits and misses, Macquarie said that the fintech missed its EBITDA targets due to higher operational expenditures. It expects volume to drive profitability for Paytm going forward. 

With brokerages and results somewhat backing Paytm, the fintech major has a long road ahead as competition continues to envelop the lucrative digital lending space. With much on the line, all eyes are now on the fintech juggernaut next quarter.