UBS forecasts Paytm’s EBITDA breakeven in FY25, initiates coverage with ‘buy’ call

Paytm’s continued monetisation, improved profitability dynamics and discounted valuations as compared to global and Indian peers makes UBS bullish over the online payments aggregator.

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Global brokerage firm UBS Securities is bullish on digital payments aggregator Paytm, fueled by the company’s strong top-line CAGR of 54 percent over FY21-24, which has been driven by its core payment business, and device and loan origination monetisation. All these have helped improve the company’s profitability dynamics and now UBS forecasts Paytm to breakeven on EBITDA in FY25 and achieve EBITDA margin by FY28.

Buoyed by expectations of strong growth, the brokerage house initiated coverage on Paytm with a ‘buy’ call, assigning a target price of Rs 900 for the stock to reflect an upside potential of over 26 percent from January 15’s closing price.

The firm also the breakeven on the EBITDA front as a key re-rating trigger for Paytm, much like other new-age companies such as Zomato, where investors value profitable growth more than pure growth.

The company is also firing on all cylinders as it emerged as a payment leader with strength across merchants and customers. “Paytm’s omni-channel payment business has earned it a 25 percent industry GMV (Gross merchandise value) share. Meanwhile, its large top-of-the-funnel payment business has accelerated monetisation across merchant devices and loans,” UBS stated in a report.

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Meanwhile, the company’s loan origination has grown 7 times through FY22-24, with lending partners rising to nine in FY24 from just four in FY22.

UBS also likes Paytm’s merchant loan (ML) business, its proprietary merchant data and daily settlement indicate early delinquency. Baking that in, the firm forecasts an overall revenue CAGR (Compounded Annual Growth Rate) of 21 percent for the company in FY24-28.

Moreover, UBS also highlighted the discounted valuations offered by Paytm when compared to global and Indian peers which works as a positive for the company. “Paytm is trading at 18 times its FY26E EV/EBITDA and 2.2 times its FY26E EV/net sales, which reflects a material discount to global payment and Indian internet peers,” the firm stated.

To sum it up, UBS believes Paytm has built a formidable payment business with large customer and merchant bases and market-leading payment infrastructure. The brokerage also expects payment regulations to turn more favourable, with the government and the National Payments Corporation of India (NPCI) supporting incentives and a small merchant discount rate (MDR) on UPI payment-to-merchant transactions.

Shares of Paytm also reacted positively to UBS’ positive outlook and at 09.36 am, they were trading over 1 percent higher at Rs 721.90 on the National Stock Exchange.

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