Paytm’s parent company One 97 Communications Ltd. has been given ‘BUY’ rating by UBS Research. UBS Research says One 97 Communications has built a powerful payments business with a large customer and merchant base and a large market leading infrastructure.
Paytm’s target price Rs 900: UBS
UBS Research has given a buy opinion with a target price of Rs 900. The research firm estimates an upside growth of 24.48% in the stock.
UBS estimates that Paytm’s EBITDA will reach breakeven by the next financial year and EBITDA margin will reach 20% by FY28. UBS says we see this as a key re-rating trigger, as seen in other new age companies, such as Zomato, where investors valued profitable growth more than net growth.
Estimate of 21% CAGR growth in income
UBS expects 21% CAGR growth in earnings during FY2024-28.
Paytm’s payments business has helped it earn 25% industry gross merchandise value share. According to UBS, Paytm’s Paytm business has accelerated monetization in merchant devices and loans. According to UBS, ‘We believe the regulator’s issues regarding payments have now been resolved, and expect Paytm to benefit from a 24% CAGR in the payments player fee pool in FY 2023-28.’
Paytm’s lending pace is expected to increase seven times during the financial year 2022-24, lending partners will increase from four in 2021-22 to 9 in the current financial year. UBS likes Paytm’s merchant loan business because the company’s proprietary merchant data and daily settlements indicate early delinquencies. ‘We estimate that earnings will grow at an overall CAGR growth of 21% in FY24-28.’
Ebitda margin will gradually go up to 20%
Paytm’s profits have improved, with margins improving to 55% of revenue in FY2024 and turning EBITDA positive excluding ESOP costs. We estimate that we will see breakeven in EBITDA in FY 2025.
UBS says that Paytm’s share price is about 25% below its peak in 2023, the Reserve Bank’s strictness on unsecured loans has affected its loan business. It has been de-rated several times, due to which the stock is trading at a discount to its global payment and Indian internet competitors.
UBS says we view this as a cyclical downturn with only limited impact, as it impacts only one part of a business vertical (post-paid loans). We remain confident of the company’s overall monetary strategy and anticipate EBITDA breakeven in FY2025.
