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Paytm shares in focus: Why Goldman Sachs sees 61% upside for the digital payments firm

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Shares of Paytm (listed as One97 Communications) were in focus today after global brokerage Goldman Sachs assigned an outperform call to the digital payments firm. Goldman Sachs is bullish on the business model of Paytm and has maintained a target price of Rs 1,100 that implies 61 per cent upside to the previous close. Buoyed by the development, Paytm stock rose up to 3.4 per cent to Rs 707.9 today against the previous close of Rs 684.60 on BSE. Shares of Paytm were trading higher than 100 day moving averages but lower than 5 day, 20 day, 50 day and 200 day moving averages.

However, the stock has lost 47.69 per cent in 2022 but fallen 10.02 per cent in a month.Market cap of Paytm rose to Rs 45,420 crore on BSE. Total 0.47 lakh shares of the firm changed hands amounting to a turnover of Rs 3.30 crore. The stock hit a 52-week high of Rs 1,961.05 on November 18, 2021 and a 52-week low of Rs 511 on May 12, 2022.

The large cap stock is trading lower by Rs 1,247  or 63.79 per cent compared to its IPO listing price of Rs 1,955 on November 18, 2021.

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In a note Goldman Sachs said,” We see the business model as continuing to show strong traction, and within our internet coverage, view Paytm as one of the most compelling growth stories at an attractive price. Since our initiation (in Dec ’21), we have steadily raised our estimates by c.13% (FY24 revenues), and are currently 5%/24% ahead of consensus on FY25 revenue/adjusted EBITDA as we expect elevated growth in high margin segments to lead to faster profitability.”

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“With valuation at 3.6x FY24 EV/Sales, a 30 per cent discount to India internet peer group, we reiterate our Buy rating on Paytm with an unchanged 12 month SOTP-based target price of Rs1,100 that implies 61per cent upside, and add the stock to Conviction List,” added Goldman Sachs.

In Q1 of the current fiscal, Paytm logged a 88 per cent rise in revenue. The firm said it remained confident of achieving break-even by September ’23 quarter and was also bullish on customer demand on usage of platform and monetisation.

However, Paytm’s consolidated loss widened to Rs 644.4 crore in the first quarter against a net loss of Rs 380.2 crore a year ago. Paytm said its contribution profit, which excludes taxes and marketing expenses but includes promotional incentives, rose over three-fold to Rs 726 crore in June 2022 quarter from Rs 245 crore in the year-ago period.

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