Foreign brokerage Citi on Thursday said while overhanging risks for One 97 Communications (Paytm) such as competition and selling by existing pre-IPO shareholders stay, such risks look overdone at the prevailing valuations.
Even as Paytm shares were trading lower for the fourth straight day, Citi suggested a target of Rs 1,055 on the stock, suggesting a potential 139 ┬аper cent potential upside.
In a bull case scenario, it sees the stock at Rs 1,230, suggesting a 179 per cent potential upside.
In a bear case scenario, it sees the stock at Rs 605, ┬аa potential 37.5 per cent upside.┬а
“We value the Payments business on an EV/GP basis at 13.5x SepтАЩ24E (at par with global payment companies) resulting in Rs 466/share (Rs 429/share earlier). We value the Financials Services business at Rs 375/share (Rs 353/share earlier). We value the commerce and cloud vertical at Rs 81/share. Overall, this approach yields a TP of Rs1,055,” it said
Citi called the stock ‘High Risk’ based on its quantitative model, but Paytm healthy net cash position and likely declining cash burn going forward do not support a ‘High Risk’ rating, it said.
Citi said Paytm has gained market share in digital payments versus PayU. This is even as the growth appears comparable on MDR-generating TPV basis at 59 per cent ┬аYoY for PayU against 52 per cent ┬аYoY (Paytm) for January-June period. In the BNPL segment, Paytm is seeing faster growth in active customer base against PayUтАЩs Lazypay, it said.
“LazypayтАЩs reported loss-rate has increased CYTD to 3.1 per cent (up 30bps vs CY21) тАУ something to watch out, for the broader BNPL space in India (Paytm has reported stable asset performance across its lending partnersтАЩ portfolio with loss-rates at 1.1-1.3 per cent for the postpaid BNPL product),” Citi said
Citi said PaytmтАЩs business in lending space is distribution and therefore its revenue/cost-structure are commissions-based. Paytm is trading at 5 times FY24E EV/Contribution profits and 4 times EV/Gross profits.┬а
“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,” it said.
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