Paytm Gets Target Price Hike From UBS As Regulatory Issues Get Resolved

UBS has revised its target price for Paytm's parent company One97 Communications Ltd. to Rs 1,250, up from Rs 1,100, maintaining its 'neutral' rating, as regulatory issues has been resolved. The brokerage has also cut Weighted Average Cost of Capital (WACC) from 12.3% to 11.6%, thus raising its target price for the company.

The brokerage noted that, the company has made steady progress toward profitability via cost measures and merchant loan scale-up while operating at a smaller scale versus earlier in customer-driven businesses.

"We believe revenue scale-up with customer additions and launch of new products in payments business are key signposts for coming quarters," it added.

The stock has re-rated to an all-time high of 7.1 times EV/1 year forward sales and trades at 62 times P/FY27E EPS, in line with Indian internet peeps, limiting upside, as per UBS.

UBS expects net payment margin to improve to 4'4 bp in FY27E versus 3.7 bps in FY25, driven by new product launches. "This drives our payment CAGR estimate of 21% over FY25-27E," it added.

The brokerage also anticipates the need to expand workforce in the fleet on field, which could increase employee expenses. "Hence, we expect total costs to rise by 18% and 13% in FY27E and FY28E."

"However, we think the company will need to incur incrementally higher costs for marketing and promotional efforts to expand its customer base, following the approval of its payment aggregator license, which enables the company to onboard new clients," it added.