Research

Goldman Sachs recommends 'BUY' rating on Paytm with a target price of Rs. 1,050

Posted On : 2022-07-30 22:27:31( TIMEZONE : IST )

Paytm, India's leading digital payments and financial services company and the pioneer of QR and mobile payments, continues to achieve a massive growth in its diverse business. Bullish on the company's strong performance in Q1 FY23, the equity research firm Goldman Sachs has maintained its stock rating to 'Buy' and forecasts elevated growth and margins in its first quarter results.

On Wednesday, July 27, analysts at Goldman Sachs have set Paytm's stock at a Target Price of Rs. 1,050, with an upside of 47.1%, after the company shared that it will declare its Q1 FY23 results in exchanges on August 05. The research firm further added: "We believe this should help allay investor concerns on the stock. We view risk-reward for Paytm as skewed to the upside, with 106% upside in our bull case versus 17% downside in bear case. We believe the current share price continues to offer a compelling entry point into India's largest and amongst the fastest-growing fintech platforms."

On track to achieve EBITDA profitability

Goldman Sachs added that Paytm's operating performance has consistently remained strong, and they are forecasting a third consecutive quarter of 90% YoY revenue growth for the company in Q1 FY23, a surge of 10% QoQ, with EBITDA margins improved by 13% QoQ to Rs. 3.2 billion. "We believe Paytm is firmly on track to achieve EBITDA profitability by end of FY24 (as per the company guidance of Sept 2023), while growing topline at a 38% FY22-25E CAGR, at the higher end of our global fintech coverage," it said.

The research firm said that Paytm's MTU (monthly transacting users) has risen to 76 million as of June 2022, against 70 million as of February 2022, suggesting no impact on user acquisition of the RBI's ban on Paytm Payments Bank in March 2022. It said that its MTUs has been seeing strong growth of 4 million QoQ net adds in Q1FY23, with rising GMV per MTU QoQ. As per SensorTower data, Paytm's monthly app downloads have been moving up.

Strong payments growth & loan disbursals in Q1 FY23

It has previewed that investor focus during the quarter will continue to be on the sustainability of payments take rate, which has been seeing a rising trend in recent quarters, translation of robust loan growth into revenue and rate of improvement in the absolute cash burn.

"We estimate Paytm's non-UPI GMV growth to be 51% YoY in Q1 FY23, 52% YoY in Q4), broadly inline with the underlying industry growth of 56% in Q1, as per our estimate and RBI data. We note that Paytm Payments Bank continues to have the lowest technical decline rates among all UPI banks, with the highest beneficiary bank market share," the research firm added.

The analysts at Goldman Sachs have mentioned that Paytm's loan disbursals saw a 56% QoQ growth in Q1FY23 to Rs. 56 billion (US$750 million). As of June 2022, Paytm is annualising US$3.2 billion in disbursals across Postpaid, Personal Loans and Merchant Loans, as compared to US$400 million in June 2021. It said that Paytm mentioned in its Q4FY22 results call that Paytm Postpaid is the most widely accepted transaction credit instrument in India - one of the key drivers of the accelerated ramp-up in the loan book, in our view.

"In addition, the sharp rise in Paytm's device merchants gives it a more qualified base to extend merchant loans to. We note that in Q1FY23, average ticket size of loans disbursed has seen a 20% QoQ growth, indicating higher engagement of products, and potentially a mix shift toward higher commission personal and merchant loans. We have raised our FY23E-25E disbursals estimate for Paytm by 3-12% on the back of strong momentum."

Shares of One 97 Communications Limited was last trading in BSE at Rs. 674.75 as compared to the previous close of Rs. 715.65. The total number of shares traded during the day was 127371 in over 3990 trades.

The stock hit an intraday high of Rs. 728.00 and intraday low of 580.00. The net turnover during the day was Rs. 89087526.00.