Shares of Paytm (listed as One97 Communications) rose after financial services firm Citi, JP Morgan, reinstated a buy rating despite falling more than 60 percent from Paytm’s IPO price. The large cap stock is trading higher than the 20 and 50 day moving averages, but lower than the 5 day, 100 day and 200 day moving averages.
Citi has resumed its coverage of the new-age fintech player with a ‘buy’ call and a target price of Rs 915. It previously had a target price of 910 on the clock. “Paytm is showing steady improvement in payment revenue generation,” said Citi. “Financial services are also rapidly scaling up.” The company is scaling up financial services at a rapid pace, the company said. Paytm stocks have underperformed since listing last year. This year, Paytm’s shares have fallen more than 53 percent so far to now trade at Rs 624.50 per share.
“We are resuming coverage of One 97 Communications (Paytm) after a brief period of internal restrictions and following the company’s 4QFY22 results,” Citi said in a report. They added that Paytm is showing steady improvement in payment monetization and rapid scaling of financial services (focus on retention and upselling/partnerships). “We expect fixed opex growth to slow significantly in FY23-24E; an adjusted EBITDA break-even by FY25E. At 6x FY24E EV/GP, valuations are relatively fair relative to peers.”
Analysts said Paytm reported good quarterly results from January to March. The brokerage firm highlighted three segments from the same. First, there were the strong gross payment margins of 10 basis points. Gross payment margins are improving steadily thanks to the improvement in overall revenues, with payment revenue up 80 percent year-over-year. Analysts further added that Paytm’s financial services business continues to grow rapidly, with a strong focus on upselling. The post-paid underwriting network stands at over 9 million; the customer base is more than 4 million.
Earlier this week, JP Morgan had remained optimistic about Paytm and maintained its “overweight” rating. The global brokerage firm had reduced its target price to Rs 1,000 from Rs 1,200 earlier.
JP Morgan has supported Paytm’s path to profitability, citing the reduction in adjusted EBITDA loss with better cost control as the key drivers for the stock. It noted that improved earnings markets paved the way for operating leverage starting in the second quarter.
The stock was listed at Rs 1,950 on November 18, 2021, a discount of 9.30 percent from the issue price, celebrating the debut of the country’s largest initial public offering (IPO) at the time. The stock opened at Rs 1,950 on NSE. The IPO was open for registration from November 8 to November 10. The price range of the IPO was set at Rs 2,080-Rs 2,150 per share. The stock made its debut for Rs 1,955 on BSE.
Meanwhile, the Vijay Shekhar Sharma-led company reported a loss of Rs 763 crore for the quarter ended March 31, 2022 against a loss of Rs 778.5 crore in the December quarter and Rs 444 crore in the year-ago period.
However, operating revenues increased 89 percent year-on-year (YoY) to Rs 1,540.9 crore in the fourth quarter, compared to Rs 815.3 crore in the corresponding quarter last year.
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