Macquarie double upgrades Paytm to 'outperform', ups target price by 80%

This comes after the firm narrowed its net loss to Rs 392 cr in Q3 of FY23, from Rs 778.4 cr in Q3FY22, and expanded revenue from operations by 41.62% to Rs 2,062.2 cr

Analysts at global brokerage firm Macquarie have given a double upgrade to fintech giant Paytm’s stocks, taking it to 'outperform' from 'underperform', and raising the target price by 80 per cent from Rs 450 to Rs 800.

Due to a sustained reduction in losses, the once bearish analysts say they have seen a “very visible change in approach of management to deliver profit” by the firm, owing to its recently reported core Ebitda profitability.

“Our view at Rs 2,150 (the IPO price) was different from our view now, when the stock is priced at about Rs 600. 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,” the firm said in a note.

This comes after the company narrowed its consolidated net loss to Rs 392 crore in the third quarter of FY23, from Rs 778.4 crore in Q3FY22. Revenue from operations also surged 41.62 per cent to Rs 2,062.2 crore in Q3FY23, from Rs 1,456.1 crore in the same period last year.

“We lower our FY23–25E loss-per-share estimates 18–72 per cent and raise our target price to Rs 800 from Rs 450, driven by a substantial increase in revenue numbers and a roll-forward to Dec-24E- from Dec-23-based valuation,” the firm said.

Macquarie analysts said that “the performance of post-paid (over 95 per cent 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 us of the quality of these loans.”

Because penetration of post-paid loans and personal loans, the firm said, is just 4 per cent and 0.8 per cent of MTU, respectively, the leeway is significant for PayTM to sustain robust growth for the foreseeable future.

Average monthly transacting users (MTU) for the fintech giant continued to grow during the quarter ended December 2022, and were up 32 per cent YoY to 85 million, driven by customer acquisitions through UPI and multiple use cases on our platform.

Macquarie did, however, also point out structural challenges in the business, saying Paytm “carries significant business and reputational risk.” A few months of bad performance, the firm said, could result in lenders withdrawing their credit lines, significantly affecting PayTM’s ability to grow.

“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.,” it added.

Goldman Sachs also recently upped its target price for Paytm to Rs 1,150 from Rs 1,120, owing to strong Q3 FY23 financial results. The firm raised Paytm’s FY24 adjusted EBITDA estimate by 30 per cent and FY25 EBITDA estimate by 14 per cent. The global investment firm further expects that the fintech platform's revenue growth could accelerate to 47 per cent YoY in Q4 FY23 due to around Rs 130 crore in UPI incentives.

JPMorgan, similarly, maintained an “overweight” stance on the stock at a target price of Rs 950. It upgraded Paytm’s FY25 EBITDA estimate to Rs 1,400 crore, but moderated GMV growth assumption. It estimates the company’s valuation to move to profit multiples.