Paytm share price will be in focus on Thursday after Goldman Sachs raised its target price on the stock, citing multiple tailwinds and favourable risk reward.
Goldman Sachs maintained its ‘Buy' rating on One 97 Communications, the parent company of fintech giant Paytm, and the target price to Rs 2,070 apiece from Rs 1,500 earlier.
The global brokerage firm said it likes Paytm for three key reasons. Firstly, Paytm's underlying market share, revenue growth and margin momentum for the business remain strong, a trend which Goldman Sachs expects to continue.
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Second, it estimates the recently announced UPI MDR to drive up to 40% EBITDA upgrades for Paytm and believes this is not fully reflected in the current share price.
Third, the brokerage firm sees optionalities to Paytm's earnings and multiples from scale up of postpaid, a potential relaunch of wallet. It noted that the next deadline for implementation of a UPI market share cap is December 2026, which could be a material event for Paytm.
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“We incorporate UPI MDR into our estimates and raise our EPS estimates for Paytm by up to 39%, with our 12-month target price moving to Rs 2,070 (from Rs1,500). Even without UPI MDR, we note that our EBITDA estimate for Paytm was more than doubling in FY27 vs FY26, and doubling again in FY28,” Goldman Sachs said.
Post incorporating MDR on UPI, it now expects Paytm's FY28 EBITDA to be 5-6x versus that in FY26, with 30% CAR post that (until FY30). It sees a positively skewed risk reward, and in a bull case scenario, sees 50% upside (significantly higher upside in a blue sky scenario).
“Paytm shares trade at 43x FY28E P/E, at the mid-point of our India internet coverage, and we believe multiples have room to re-rate if Paytm is able to sustain 25% revenue growth with expanding margins, in addition to any favourable regulatory events,” Goldman Sachs said.
On its two-year forward EV/EBITDA, Paytm trades at a discount to Nykaa and Eternal (Zomato), despite a similar or stronger EBITDA growth profile.
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