Paytm spikes on low level buying, positive analyst commentary

Data available on Bloomberg shows, out of 12 analysts tracking the stock six have a ‘buy’ rating and three each have ‘hold’ and ‘sell’. The consensus 12-month target price is at Rs 872.

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Shares of Paytm parent One 97 Communications spiked on November 25 on low level buying as the demand for the counter upturned following a positive commentary from analysts.

After hitting an all-time low of Rs 439.6 in the previous session, the scrip jumped nearly 7 percent to Rs 470 apiece on the BSE on Friday.

Many opine that selling has been overdone in Paytm, and the stock that has been on a declining trend may be a good buy at this level. Most brokerages are bullish on the counter with some seeing over 100 percent potential upside in the next 12 months.

Watch: Paytm – Is the pessimism getting out of hand? | Markets with Santo & CJ

Data available on Bloomberg shows, out of 12 analysts tracking the stock six have a ‘buy’ rating and three each have ‘hold’ and ‘sell’. The consensus 12-month target price is at Rs 872.

“We note that Paytm’s business in lending space is distribution with no balance sheet exposure and therefore its revenue/cost-structure are commissions-based,” said Vijit Jain of Citi, who has a ‘buy’ rating with target at Rs 1055. “We acknowledge overhang risks from further selling by existing pre-IPO shareholders and that fintech is a competitive space but at these valuations, those risks are overdone.”

Paytm has gained market share in digital payments vs PayU, although the growth appears comparable on MDR-generating total payment volume (TVP) basis at 59 percent YoY for PayU vs 52 percent YoY for Paytm for Jan-June 2022.

In the buy now, pay later (BNPL) segment as well, Paytm is seeing faster growth in active customer base vs PayU’s Lazypay. Lazypay’s reported loss-rate has increased year to date (YTD) to 3.1 percent (+30 basis points vs CY21) – something to watch out for in the broader BNPL space in India, said Jain.

However, some analysts have counted risks that may push stock prices lower. They have also lowered their price target. One among them is Macqarie’s Suresh Ganapathy who has an ‘underperform’ rating with target at Rs 450.

Read: Macquarie sees emerging threats for Paytm from Jio Finance

Among the risks are high competition in the payments industry, inability to monetise UPI services, inability to scale lending business and any regulatory risks.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.