Goldman Sachs says Paytm could achieve EBITDA before ESOPs profitability sooner, raises target price to ₹1120

Paytm could be adjusted EBITDA profitable in March 2023, two quarters ahead of guidance of September 2023, baking in the UPI reimbursement by the government, says Goldman Sachs in a research report. The research firm seems to be quite upbeat on Paytm as it reiterated its BUY rating with a revised target price of Rs 1,120, from earlier Rs 1,100 apiece, a potential of 116% from last close.

Analysts at the research firm expect the third quarter of the fiscal to be another strong quarter for the company, with revenue growth of 45% y-o-y, and further improvement in adjusted EBITDA losses (by 58% q-o-q) to (-) Rs 0.7 bn. "We believe Paytm's margin print in 3Q would further increase the street's confidence around the company's ability to be profitable in CY23. Paytm's MTU (monthly transacting users), loan disbursals and devices deployed continue to surprise us positively, and we have further raised our estimates for these metrics," said the analysts in the report.

Goldman Sachs also believes Paytm's margin print in October-December quarter would further increase the street's confidence around the company's ability to be profitable in calendar year 2023. Earlier, BofA Securities also expected that Paytm could surprise with better-than-expected adj EBITDA losses in the third quarter of the fiscal. It estimated that Paytm will post 1% q-o-q revenue growth versus 14% in July-September 2022.

The research and brokerage also believes Paytm's current share price continues to offer a compelling entry point into India's largest and one of the fastest-growing fintech platforms. It sees focus during the third quarter of the fiscal on (a) Paytm's cash burn, which it sees as sharply improving and on track for breakeven by Mar '23; (b) whether Paytm has been able to maintain credit metrics despite strong growth in disbursals; (c) and update on regulatory issues such as ban on PPBL, online merchant onboarding (payment aggregator authorisation), etc.

No meaningful competition in Soundbox

Paytm's device deployment saw another strong quarter, with 1 mn devices added in 3QFY23; cumulative base is now at 5.8 mn, implying 19% of the company's merchant base. Goldman Sachs estimates device rental to make up 14% of Paytm's payments revenues in 3QFY23, vs 8% in 3QFY22. Paytm recently mentioned that it is not seeing meaningful competition in soundbox. It is also expected that Paytm's cloud business could see a healthy 12% q-o-q growth (38% y-o-y), driven by strong growth across digital advertising and credit card distribution.

The Union Cabinet approved the incentive scheme of Rs 26 billion for promotion of RuPay Debit Cards and low-value BHIM-UPI transactions (P2M) for FY23. Goldman Sachs also noted that Paytm Payments bank has the highest UPI beneficiary bank market share and expects it to be one of the key beneficiaries of this incentive.

Recently, this was also pointed out by Morgan Stanley which said Paytm will be a key beneficiary of India's Unified Payments Interface (UPI) incentive scheme. "Apart from banks, Paytm should be a key beneficiary of the above. On our estimates, Paytm would have received 5-7 per cent of the FY22 incentive, and assuming a similar share for FY23, this would represent 3-5 per cent of our contribution profit estimate (1 per cent higher than what we previously assumed for FY23)," it added.

Shares of One 97 Communications Limited was last trading in BSE at Rs. 526.65 as compared to the previous close of Rs. 553.10. The total number of shares traded during the day was 208625 in over 9374 trades.

The stock hit an intraday high of Rs. 557.00 and intraday low of 523.00. The net turnover during the day was Rs. 111781414.00.

Source : Equity Bulls

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PayTM INE982J01020 Internet DigitalPayment GoldmanSachs Report