Paytm Gets Thumbs Up From All Major Brokerages After Its Analyst Meet, Stock Gains

Paytm, whose share have logged the worst decline for any major initial public offering in the past decade, told analysts that it plans to start generating free cash flow over the next 12-18 months

On Friday, shares of Paytm closed at Rs 536.90 apiece, up 7.06 per cent on the BSE.

Shares of One 97 Communications, the parent firm of Paytm, went up by 7 per cent on Friday after the fintech firm sounded optimistic on its growth prospects and reasserted its guidance on turning profitable at an operating level next year. After the company management’s presentation, several brokerage firms have given a thumps up to Paytm on Friday.

JM Financial said, “On our valuation metric of FY30E EBITDA discounted back to FY24E, Paytm is currently trading at 14x EV/ EBITDA which is in line with average valuation of global peers.”

The brokerage firm added the company's management has highlighted the large growth opportunity for the payments business in India with a potential of 100 million merchants and more than 500 million payment customers and opportunity to cross sell financial services and commerce business offerings to them. "The management also provided more granular details on the key revenue drivers across business segments and breakup of key costs and moderation trajectory, which in turn should help Paytm achieve adjusted EBITDA (ex-ESOP costs) breakeven by FY24E," it said.

Analysts at brokerage firm CLSA, on the other hand, said Paytm expects to become cashflow positive in the next 12-18 months, which is "in line with our view of cash burn ending in the next 4-6 quarters". The brokerage said, "We note that the company has more than $1billion net cash (equating to more than 25 per cent of its current market cap)."

In a note, ICICI Securities said that Paytm has exceeded expectations in the past few quarters and added that the company remains, “Ahead of the guided timeline to achieve operating profitability”.

Earlier this year, Paytm had guided that it will register operating profits after adjusting for employee stock options related costs by the September quarter of the next financial year. The company, whose share have logged the worst decline for any major initial public offering in the past decade, also told analysts that it plans to start generating free cash flow over the next 12-18 months.

Analysts at Morgan Stanley noted that the top management doesn’t see any significant risk to its payment margins with respect to regulations, adding that net payment margins should remain broadly steady, while adding that the management also remains confident about Paytm’s loan distribution business, which has been gaining significant growth traction over the past few quarters.

Meanwhile, BofA, which has a neutral rating for Paytm, said in its note that the key message from Paytm's analyst day was that its core businesses payments and lending are working well and should scale up with time. The company intends to stick to its strengths like technology, distribution and collections.

Goldman Sachs in a note after the analyst meet said that the company provided incremental colour around aspects such as PPBL’s user onboarding ban, Paytm’s lending customer base and partner strategy, impact on device rentals from competition, profitability drivers (tracking ahead of expectation), and clarity around certain other regulatory issues.

It said, “We are encouraged by new disclosures made by Paytm, the company’s focus on FCF and profitability, reducing competition in devices, and focus on aligning business with regulations.”

On Friday, shares of Paytm closed at Rs 536.90 apiece, up 7.06 per cent on the BSE.

(Disclaimer: The views expressed by experts in the report are their own and not of ABP Live. Readers are advised to exercise caution before taking any investment decision.)