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Paytm Shares Gain After Company Projects Upside On Cashflow

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Shares of One 97 Communications Ltd., the parent of Paytm, gained after its management said it hopes to generate positive free cash flow over the next 12 to 18 months.

Following a 61% plunge in its stock price since January and taking into account the traction Paytm has garnered on loan distributions and sales of its “soundbox” devices, brokerages said the stock might be worth a fresh look.

Paytm’s loan disbursals have jumped by 482% year-on-year and touched Rs 7,313 crore as of September 2022, according to a recent exchange filing. The number of its subscription-paying merchants—for payment devices—also climbed to 4.8 million in September 2022, up from 1.3 million in September 2021.

Still, analysts said, there are also some risks that could turn into headwinds.

“Soundbox contributes 14% of gross payment revenue and 38% of net payment revenue,” according to estimates by CLSA analysts. Given the uptick in competition on soundboxes and the increasing share of UPI transactions, it’ll be hard to meaningfully push up the take rate on payments, the analysts added in their note.

Maintaining asset quality that guarantees decent take rates, ensuring that BNPL customers don’t move to credit cards en masse, and avoiding a price war in the soundbox segment would be key monitorable for the company, according to reports by brokerages.

Shares of Paytm gained 4.14% at Rs 521.80 a piece as of 10:55 a.m., while the benchmark Nifty 50 eased 0.59%.

Here’s what brokerages had to say after meeting Paytm’s management on Dec. 1

CLSA:

  • Assigns ‘buy’ rating with a target price of Rs 650 apiece.

  • Paytm has more than $1 billion on balance-sheet.

  • CLSA expects Paytm’s cash burn to end in another four to six quarters.

  • Continued selling of Paytm shares by pre-IPO investors is a near-term risk for the company.

Morgan Stanley:

  • MS noted that Paytm management does not consider any material impact on its business after the Reserve Bank of India asked the company to resubmit its application for payment aggregator licence.

  • The resubmission only requires FDI approvals and does not restrict the onboarding of offline merchants.

  • Assigns ‘equal weight’ with target price of Rs 695.

JM Financial:

  • Paytm’s stock price has corrected by 77% since its IPO last year, making risk-reward favourable, analysts said.

  • Upgrades Paytm’s ratings to ‘buy’ and maintain price target of Rs 600 apiece.

ICIC Securities:

  • The company earns a net payment margin of 7 to 9 basis points of gross merchandise value, i.e., the value of merchandise sold through its platform, analysts at ICICI Securities noted in a Dec. 2 report. Of the margins, 3 to 4 basis points are earned via UPI, while 15 to 18 basis points come from other transactions like wallet or cards, the report added. Paytm is also planning to launch a soundbox with card acceptance.

  • Paytm is also planning to launch a soundbox with card acceptance.

  • Paytm also has no desire to become a non-banking financial company, as it could require it to compete with other big players, which are its partners in the current model, the ICICI Securities said.

  • The brokerage maintains a ‘buy’ rating with a target price of Rs 1,285 apiece.



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