Citi remains bullish on Paytm, says risks are now “exaggerated.”

New Delhi:

Brokerage firm Citi remains bullish on Paytm, even as stocks continue to hammer the stock markets.

Citi has issued a buy recommendation for Paytm, with a target price of Rs 1,055.

Paytm today lost 2.49 percent to Rs 441.05 at the end of trading on BSE.

According to a Bloomberg report, One 97 Communications, the operator of Paytm, has capped the worst first-year stock decline among major IPOs (Initial Public Offerings) in the past decade.

The company, whose founder compared its challenges to those of Tesla Inc. shortly after going public, saw its shares erase 75 percent of its market value a year after its $2.4 billion bid, the largest on record in India at the time. The plunge is the world’s steepest first-year decline among IPOs that raised at least the same amount since Bankia SA’s 82 percent decline in Spain in 2012…,” the Bloomberg report said.

The Citi report came a day after Prosus, a global investment group, commented on its Indian payments business. Prosus said: “In India, our largest payments market, TPV (total payment value) grew 59 percent to $28 billion, and revenue increased 48 percent to $183 million, driven by increasing digitization in e-commerce, financial services and bill payments. and an uptick in post-pandemic travel.”

PayU is the fintech and payments arm of Prosus.

Comparing it with PayU, Citi said Paytm has gained market share in digital payments over PayU.

Growth appears similar based on a Merchant Discount Rate (MDR) generating total payment value (TPV) of 59 percent for PayU versus 52 percent for (Paytm) for the January-June period, Citi said.

In the buy-now-pay-later (BNPL) segment, Paytm is seeing faster growth in its active customer base compared to PayU’s Lazypay.

Lazypay’s reported loss rate is up 30 basis points to 3.1 percent compared to calendar year 2021, which is “something to watch out for the wider BNPL space in India,” said Citi

Paytm has reported stable asset performance across its credit partners’ portfolio with loss rates of 1.1-1.3 percent for BNPL products.

“We recognize overhanging risks from further sales by existing pre-IPO shareholders and that fintech is a competitive space, but at these valuations those risks are exaggerated,” said Citi.

“This stock is risky based on our quantitative model, but its healthy net cash position and likely declining cash burn going forward do not support a high risk rating,” Citi analysts said.