Paytm Shares: Foreign brokerage Morgan Stanley said that it has assigned a equal-weight rating to One 97 Communications (Paytm) while suggesting a target of Rs 935 on the stock, after the recent steep fall in the share price and the company’s Q4 business update. The brokerage house sees up to 46 per cent upside in Paytm parent One 97 Communications’ stock, while sticking to its last assigned price target of Rs 935. Earlier, last month, Morgan Stanley had cut target price to Rs 935, and rating to ‘equal weight’, when the Reserve Bank of India (RBI) barred Paytm Payments Bank from onboarding new customers due to supervisory concerns.
On Thursday afternoon, the stock was trading at Rs 627.80 on BSE, down 1.41 per cent. Morgan Stanley target suggests a potential 46 per cent upside in the stock.
The scrip has been in news after the company guided for operating Ebitda break-even in the next six quarters.
Morgan Stanley noted that Paytm is nearing an end of its current investment phase and the company is expecting indirect costs to moderate. “We currently project Ebitda break-even in F25 and will revisit our estimates after Q422 earnings. Paytm doesn’t expect any impact on its growth trajectory owing to the above,” Morgan Stanley said.
This brokerage counts allowance of merchant discount rate under UPI; introduction of interchange on wallets as it turns interoperable; better than expected execution on financial services in terms of underwriting and large bank or NBFC tie-ups as key risks to the upside.
One97 Communications’ founder and CEO Vijay Shekhar Sharma said, yesterday, Paytm is looking to be operating EBITDA breakeven (Ebitda before Esop cost) by end of September 2023.
In a letter to shareholders, while announcing its last quarter results, Sharma said against the backdrop of volatile market conditions for high growth stocks globally, Paytm’s shares are down significantly from the IPO price.
“Against the backdrop of volatile market conditions for high growth stocks globally, our shares are down significantly from the IPO price. Rest assured, the entire Paytm team is committed to build a large, profitable company and to create long-term shareholder value. Aligned with this, my stock grants will be vested to me only when our market cap has crossed the IPO level on a sustained basis,” Founder and CEO Vijay Shekhar Sharma said on Wednesday.
Paytm had offered shares to the public at Rs 2,150 apiece at a market valuation of Rs 1.39 lakh crore. The stock has been on a downward trend since its listing in November 2021 and has fallen more than 70 percent with market capitalisation watering down to Rs 41,000 crore.
BSE had recently sought clarification from Paytm on the massive slide in its stock price. Shares of the company have fallen on the back of receding interest among investors for loss-making growth companies in light of higher interest rates, confusion about Paytm’s road to profitability, and recent regulatory actions against the company.
Paytm said its lending business scaled to 65 lakh loan disbursals during the quarter, aggregating to a total loan value of Rs 3,553 crore, up 417 per cent YoY. Total value of loans disbursed in March stood at about Rs 1,460 crore compared with Rs 1,170 crore in February and Rs 920 crore in January.
Offline payments business, Paytm said, accelerated with 90 lakh devices deployed during the quarter. Total number of devices deployed grew to 29 lakhs. This is against 20 lakh devices in the previous quarter.
Morgan Stanley noted that the RBI has banned new customer onboarding at Paytm Payments Bank and has yet to clarify potential changes to digital payment charges. It sees a slight change as the latter could move up.
“With reference to US payment and fintech firms, we apply adjusted F26e EV/sales multiples of 5 times (base), 4 times (bear),and 6.5 times (bull) and derive FY25 EV, which we discount to FY23 at a 13.4 per cent WACC. We then add net cash as of March 2024e,” it noted.
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