JPMorgan Sees 60% Upside In Paytm’s Beaten-Down Stock. Here’s Why...

Shares of One97 Communications Ltd. gained as JPMorgan sees sales growth and contribution profit of Paytm's parent “trending in right direction”.

A sustained improvement in profit margin contribution over the last two quarters “sets the stage for operating leverage Q2 FY23 onwards as indirect costs moderate”, resulting in a “consistent downtrend” in adjusted operating loss and an “eventual path to breakeven”, the research house said in a June 6 report.

JPMorgan reiterated its ‘overweight' rating on the company and a target price of Rs 1,000 apiece, implying a potential upside of more than 60% from the current levels. The stock has tumbled over 70% since it went public in November last year at an IPO price of Rs 2,150.

Vijay Shekhar Sharma, founder and chief executive officer at Paytm, in the fourth-quarter business update in April had said the company expects to break-even on operating Ebitda (before ESOP cost) by the quarter ending September 2023. “We are going to achieve this without compromising any of our growth plans and well ahead of estimates by most analysts.”

JPMorgan termed Paytm as the “leading fintech horizontal” in India, having built more sources of monetisation across payments, commerce and financial services than all of its competitors. “This gives it the unique ability to drive monetisation and profits across several segments at lower customer acquisition cost versus peers.”

It expects Paytm to see strong revenue growth across all its business segments, thanks to device monetisation in payments, financial services cross-selling, ticketing recovery and rising ad monetisation. “We see revenue growing at more than 40% CAGR over FY22-26 to around Rs 21,750 crore. We see it retaining the highest revenue and profit levels among local vertical and global horizontal peers.”

Risks JPMorgan sees to its rating and price target

• Lower-than-anticipated growth in monthly transacting users and GMV per MTU.

• Lower-than-anticipated growth in loans and risk of unestablished portfolio credit behaviour.

• Adverse regulatory risks to payment merchant discount rates and restrictions on digital lending.

Not all brokerages, however, are as optimistic on Paytm as JPMorgan.

Macquarie—the first to assign a bearish rating to the digital payments platform ahead of its debut on the bourses—sees “tough times ahead”. The brokerage, which had made the most accurate call on Paytm's parent after listing, has a target price of Rs 450 apiece, with an ‘underperform' rating.

Of the nine analysts tracking the company, four suggest a ‘buy', two recommend a ‘hold' and three a ‘sell', according to Bloomberg data. The average of the 12-month consensus price target implies an upside of 37.2%.

Shares of One97 gained as much 2.2% to Rs 627.95 apiece on Tuesday.