Shares of Paytm, the fintech giant operated by One97 Communications Ltd., fell even as brokerages upped their target price as the Vijay Shekhar Sharma-led firm narrowed its loss in the second quarter.
Its consolidated net loss narrowed sequentially to Rs 291.7 crore in the quarter ended September, according to its exchange filing. That compares with the Rs 285.2 crore consensus estimate of analysts tracked by Bloomberg.
One97 Communications Q2 FY24 Key Highlights (Consolidated, QoQ)
Revenue up 7.5% to Rs 2,518.6 crore (Bloomberg estimate: Rs 2,564.4 crore).
Ebitda loss narrowed to Rs 231 crore versus Rs 292.1 crore (Bloomberg estimate: Ebitda loss of Rs 119.6 crore).
Net loss narrowed to Rs 291.7 crore from Rs 358.4 crore (Bloomberg estimate: Net loss of Rs 285.2 crore).
Shares of the company fell as much as 5.65% to Rs 931.80 apiece, lowest level since Oct. 17, compares to a 0.38% decline in the Nifty at 12:07 p.m.
Of the 15 analysts tracking the company, 13 maintain a 'buy' rating and two suggest 'hold', according to Bloomberg data. The return potential of the stock implies an upside of 22.2%.
Here's what brokerages made of Paytm's Q2 FY24 Results:
Citi
Maintains 'buy' rating. Raises target price to Rs 1,300 from Rs 1,160 apiece, implying a potential upside of 32.5%.
Modest miss on adjusted Ebitda compared to Citi's estimate, on lower commerce and cloud vertical and higher sales fleet expenses.
Views Paytm's accelerating investments behind devices business as a positive, as it comes ahead of potential competition heating up and as merchant lending business, which leverages the devices base, is demonstrating solid growth momentum and loan performance trends.
New partner additions on track – Shriram Finance Ltd. and Tata Capital Ltd. to ramp up in Q3.
Raises FY25/25 adjusted Ebitda estimates by 31%/28% and lower multiple to 48 times (56 times earlier; lower multiple as growth upside risks now incorporated).
Still sees significant upsides despite runup year-to-date, given strong fundamentals and our positive outlook on its aggressive/front-loaded investments into devices business.
BofA Securities
Maintains 'buy' rating. Raises target price to Rs 1,165 from Rs 1,020 apiece, implying a potential upside of 18%.
Revenue was largely inline with estimates (up 32% year-on-year); Ebitda was better than brokerage estimates, on steady payments growth and credit uptake.
Slower loan growth was inline with brokerage expectation, as Paytm was consciously looking to prune growth on loan side and focus on portfolio quality.
Goldman Sachs
Maintains 'buy' rating at an unchanged target price of Rs 1,200, implying a potential upside of 26.6%.
Paytm's 32% YoY revenue growth in Q2 FY24 is at the higher end of its India internet coverage, while profitability continues to expand.
The most asked investor question on Paytm recently has been on the company's ability to manage an adverse credit cycle, and while loan growth has seen some deceleration (9% QoQ growth in Q3 vs 18% in Q2), credit quality has been improving across all three products of personal loans, BNPL and merchant.
The company has guided to further improve in credit metrics in the coming quarters and Goldman Sachs sees this trend as evidence of strong underlying payments data quality on the Paytm platform, which in its view will be difficult to replicate by most competitors.
Sees upside to both Paytm earnings and multiples, as brokerage expects continued momentum in lending and payments, with strong operating leverage in the business model. Resolution of outstanding regulatory issues (customer onboarding ban on Paytm Payments Bank or online merchant onboarding ban), and/or inclusion of a bank as a lending partner could act as catalysts for Paytm.
Goldman Sachs made modest changes to its estimates on the back of Q2 results. At $200 million in FY25 Ebitda, it continues to expect Paytm to be the most profitable company within India internet, and sees the company turning net income positive in FY25, as another catalyst for the stock.
At 37 times FY26 P/E, Paytm trades at a 20%/50% discount to Zomato/Nykaa, which the brokerage does not see as justified, given Paytm's growth profile.
Motilal Oswal Financial Services Ltd.
Maintains 'buy' rating. Raises target price to Rs 1,160, implying a potential upside of 18%.
Paytm reported a largely in line Q2 with sustained momentum in GMV and healthy growth in disbursements. This, coupled with strong traction in subscription devices, led to healthy growth in total revenue. Steady payment margins and rising mix of financial business boosted contribution margin to 57%.
Adjusted Ebitda was slightly below the brokerage's estimate, but it continues to estimate the company to achieve the Ebitda breakeven by FY25.
Consistent improvement in contribution margin and operating leverage will continue to drive operating profitability, the brokerage said.
Yes Securities
Maintains 'less-than-bullish add' rating. Raises target price to Rs 1,100, implying a potential upside of 11%.
Management calls a bottom, perhaps a tad surprisingly, for loan distribution growth. The key reason for the expectation of improved growth in personal loans is that the company now has a large user base, which has seen maturing customers.
About Rs 300-400 crore personal loans mature every month and is available for upsell and hence, the company is seeing improved renewal opportunity.
Personal loans would remain muted for two more quarters and a 30-40% YoY growth can be expected. Merchant loans growth will be healthier and in excess of 50-60%. On a blended basis, total credit growth would be 40-50%.
While the consumer payments business is slow, the merchant payments business remains robust.
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