Macquarie, which on the day of One97 Communications (Paytm) listing called the Vijay Shekhar Sharma-led company a cash guzzler and cut the stock’s target to as low as Rs 450 recently, has doubled upgraded the stock to ‘Outperform’ from ‘Underperform’. The foreign brokerage now values the stock at Rs 800 apiece.
Macquarie said since the listing of Paytm shares at Rs 2,150 in mid-November 2021, the stock is down 70 per cent against a flat Nifty and that its view on the stock at Rs 2,150 was different from its view when the stock is now priced at around Rs 600 level.
At the time of listing, Macquarie said, profit and free cash flow were not even a part of management’s discussion. However, there has been a very visible change in approach of the management to deliver profit, it said. The brokerage has raised its FY23–26E revenue estimates by 33–51 per cent and its target by 80 per cent.
“Since our last target price cut, Paytm has positively surprised on the distribution of financial services revenue by a wide margin and has also managed to control overall expenses and charges,” it said.
Risks still there
Macquarie noted that many BNPL (buy now pay later) models have failed across the world, including in India. Although Paytm does not carry any balance sheet risk on the loans originated, it carries significant business and reputational risk, Macquarie noted. A few months of bad performance could result in lenders withdrawing their credit lines, significantly affecting Paytm’s ability to grow, it said adding that there are also risks related to competition as well as regulatory issues, with Paytm seemingly facing regulatory ire for lapses on its part.
“We also believe a lot more needs to be done on corporate governance by getting an independent non-executive chairman, more independent members on the board, etc,” Macquarie said.
What changed Macquarie’s mind?
Macquarie said its channel checks with some of the largest lenders/partners of Paytm reveal that the performance of post-paid (95 per cent-plus by volume) as well as personal loans continues to be pretty robust, and the company has now seen
several repeat purchases/transactions over the past 12 months, which assures of the quality of these loans.
“Because penetration of post-paid loans and personal loans is just 4 per cent and 0.8 per cent of MTU (monthly transacting users), respectively, the leeway is significant for Paytm to sustain robust growth for the foreseeable future,” Macquarie said.
Macquarie has lowered its FY23–25E loss-per-share estimates by 18–72 per cent and raised its target price to Rs 800 from Rs 450, driven by a substantial increase in revenue numbers and a roll-forward to December 2024 from December 2023-based valuation.
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