Shares of Paytm — One 97 Communications — have always been closely monitored ever since the digital payments major made a high-profile debut on the stock exchanges in November 2021 only to see its valuations crash in the public markets – shares touched a low of Rs 440 in November 2022 as against the issue price of Rs 2,150.
But much has changed since then and the analyst community now believes that bulk of the negatives is already priced in and the stock is set for an upward rally.
In a latest note, global financial major Citi has stated that the shares of the online major, which enjoys the first-mover advantage in many aspects of the payments ecosystem, look quite attractive at current levels and, more importantly, there are many growth drivers in the offing.
“We rate One 97 Communications (Paytm) as Buy. We think Paytm has several existing and emerging levers to drive long-term platform stickiness (BNPL, Devices, etc.) and improve overall profitability (Financial Services) in the business,” stated the Citi report released on Monday.
“Paytm’s key edge is its first-mover advantage on both sides of the payments ecosystem (71mn MTUs and 25mn merchants) which gives it a solid customer acquisition engine for new services – commerce, financial or payments. The stock has declined materially from its IPO price of Rs2,150/sh, partly in line with fintech sector de-rating YTD, compounded by concerns on profitability in the core payments business (overstated in our view) and regulatory headwinds in India (moderate risk in our view). At CMP, we think valuations are attractive and are pricing in most of the downside risks,” it added.
Interestingly, Citi has a target price of Rs 1,061 for Paytm – a premium of over 80 per cent when compared to the current market price of around Rs 580.
Citi, meanwhile, has highlighted the fact that the February operating metrics of the company indicated a sustained momentum in loan disbursals (up 6 per cent month-on-month by value) and device deployment (up 0.3 million).
“Payment GMVs rose 39 per cent YoY (MTUs: 85mn; flat MoM) and Paytm’s market shares in total UPI payments and digital merchant payments remained largely steady at 11% and 24%, respectively,” it added.
But there are risks as well, says Citi while adding that the Paytm’s healthy net cash position and likely declining cash burn going forward do not support a ‘High Risk’ rating.
The key downside risks that could affect the target price, as per Citi, include competition (digital payments segment is super competitive); monetisation and profitability (UPI is the fastest growing digital payment instrument); financial services (lending through distribution faces headwinds); and regulatory (merchant discount rate or MDR regulations, interoperability, etc).
Incremental Buy Now Pay Later (BNPL) regulations may also affect Paytm shares, says Citi.
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