One 97 Communications aka Paytm share price extended its rally for a second consecutive day on Tuesday.
In early trade, the stock struck a 20% upper circuit. While the stock has skyrocketed by over 27% in 2 days. Major brokerages globally have raised their target price for Paytm shares after strong Q3 numbers. Paytm shares are seen to clock triple-digit percentage upside ahead.
At the time of writing, Paytm shares soared by 9.81% or ₹54.75 to trade at ₹612.75 apiece on BSE. Its market cap is around ₹39,787.96 crore.
Earlier today, in early trade, Paytm shares hit its 20% upper circuit of ₹669.60 apiece.
Paytm shares have kicked started the week with a bang post Q3. On Monday, the share price closed at ₹558 apiece up by 6.31% on Dalal Street. So far, in the week, the shares have climbed by at least 27.55% on D-Street.
The digital financial services provider's consolidated net loss narrowed sharply to ₹392 crore in December 2022 quarter against the loss of ₹778.4 crore in the same period a year ago. Meanwhile, revenue climbed 42% to ₹2,062.2 crore in Q3FY23 versus ₹1,456.1 crore in Q3FY22, driven by increased adoption by consumers and subscription services by merchant partners along with sustained growth seen in loan distribution and commerce business.
Paytm founder and CEO Vijay Shekhar Sharma said the company during the December quarter has achieved its target for operational profit, excluding ESOP cost.
The fintech achieved an operating profitability milestone with EBITDA before ESOP cost at ₹31 Crore, significantly ahead of its guided timeline of September 2023.
Brokerages such as Citi, CLSA, and Goldman Sachs have recommended buying Paytm stock post-Q3FY23 earnings, while BofA maintained its 'neutral' rating on the stock.
Majority of brokerages raise target price in Paytm:
In its report, CLSA analysts said, "Paytm had a strong performance in 3QFY23 as it posted positive Ebitda (ex of ESOP costs), beating its own guidance of break-even by Sep-23 by a margin of three quarters. Moreover, the company did not record any UPI incentive in 3QFY23, unlike 3Q22, implying that the Rs1.3bn top-line guidance for 4QFY23 is already confirmed above the normal run rate. Thus, the positive Ebitda journey is likely to be sustained."
Also, CLSA added, "Net payment margin (ex of subscription revenue) was largely stable at 8bp QoQ on an adjusted basis. The lending segment posted a robust 28% QoQ growth in revenue on the back of strong execution. Commerce revenue also surprised positively, up 50% QoQ with a strong seasonal push."
Post strong Q3 numbers, CLSA is upbeat on the fintech giant. On the valuation, it said, "the merchant device subscription business saw sustained business as Paytm added 1 million devices in 3QFY23, in line with its prior guidance. We raise our Ebitda ex-ESOP costs estimates by 14-20% for FY25-26CL and our DCF-based target price increases to Rs750, implying a 43% upside. We lower risk-free rate as per our fresh country macro estimates and lower cost of equity. We reiterate our BUY rating."
With fixed costs reined in, margins can comfortably continue to expand Citi's note said, "Our SOTP implies 36x EV/Adj EBITDA on Mar’26E. The stock trades at 16x, cheap in our view given growth trends and the solid profitability ‘beat’ this Q, with potential for strong profitability trajectory ahead (Fig 14). On a relative basis, the stock trades at a substantial discount to Indian consumer internet peers (Paytm at 16x vs Zomato/Nykaa at 20x/27x on FY26E EV/Adj EBITDA). Buy."
Citi has raised its target price on Paytm to ₹1,061 per share from earlier ₹1,055 per share.
Meanwhile, Goldman Sachs expects investors' debates to be centered around Paytm’s ability to maintain industry-leading growth rates while sustaining credit metrics, and if margins can continue to expand from here on.
Currently, Paytm’s valuation multiples are at a discount to peers.
While maintaining a 'Buy' rating, Golman raised its FY24/FY25 adjusted EBITDA estimates for Paytm by 30%/14% on the back of significantly stronger 3QFY23 (Dec ’22) results, and target price to Rs1,150 (from Rs1,120).
"Not only do we expect profits to sustain, but with continued strong traction in disbursals, operating leverage, and UPI reimbursement in Mar ’23, we expect adjusted EBITDA margin to expand to 6% in Mar ‘23 (vs +2% in Dec ’22), with c.US$190 mn in adjusted EBITDA by FY25, one of the highest within our India internet coverage. We see Paytm reporting adjusted EBITDA profitability as a significant catalyst for the stock, and expect net income profitability in FY25," Goldman's note said.
On the other hand, BofA Securities has a 'Neutral' recommendation on Paytm. Its note said, "we are optimistic on fundamentals and see room for Paytm to scale up aggressively without taking any balance sheet risks.
While Paytm has key differentiating factors versus peers, overall given higher competition & additional regulatory risks, we expect slower path to monetization leading to delayed EBITDA breakeven. In our view, the lending business provides an upside optionality to Paytm giving Paytm room to scale up subject to execution."