Paytm gets ‘buy’ rating from Motilal Oswal, 34% uptick on target price

Motilal Oswal Securities has given One97 Communications Ltd, the parent company of Paytm, a buy rating with a target price of Rs 865 per share, representing a 34% increase from the current market price.

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Motilal Oswal Securities has given One97 Communications Ltd, the parent company of Paytm, a ‘buy’ rating with a target price of Rs 865 per share, representing a 34 percent increase from the current market price.

Despite a slight slowdown due to Covid-19, Paytm has shown strong growth in its Gross Merchandise Value (GMV), with a Compound Annual Growth Rate (CAGR) of 55 percent from FY19-23. After Covid, the GMV has picked up significantly, clocking a CAGR of 81 percent from FY21-23. Motilal Oswal expects that the GMV will continue to record a healthy CAGR of 27 percent over FY23-25 due to increasing usage of Paytm.

Paytm’s Monthly Transaction Users (MTUs) have grown to 90 million as of FY23, while the number of subscription payment devices has risen to 6.8 million. As the penetration among merchants remains low, it is expected that Paytm’s growth trajectory will continue, with an addition of 1 million devices per quarter. Payment revenue is expected to grow at a healthy 21% CAGR over FY23-25, Motilal said in its recent report.

Paytm’s financial business is expected to boost the profitability of its core payment business, as it has a higher contribution margin by nature. The proportion of financial services revenue has increased from 4 percent in FY19 to 19 percent in 9MFY23.

Its lending business has shown strong growth in loan disbursals, with the total number of loans disbursed increasing 4.6x YoY in FY23. Motilal Oswal said that it is estimated that Paytm’s loan disbursements will register a robust CAGR of 64 percent over FY23-25.

Paytm achieved a breakeven in adjusted EBITDA during 3QFY23, ahead of its guidance. “It is expected that Paytm will reach EBITDA break-even by FY25, with an EBITDA margin of 3.2 percent. The revenue and contribution profit of Paytm are estimated to grow at a CAGR of 26 percent and 32 percent over FY23-28,” the brokerage firm said.