Paytm Shares Gain Over 7% As Most Brokerages Reiterate 'Buy' After Q1
Shares of One97 Communications Ltd. surged 7.7% after the company saw its loss narrow in the first quarter, and revenue rise aided by its payments services business.
The parent of digital payments platform Paytm reported a net loss of Rs 644.4 crore in the quarter ended June against a net loss of Rs 761.4 crore in the preceding three months, according to its exchange filing. That compares with the Bloomberg consensus estimate of Rs 789.4-crore loss.
Paytm Q1 FY23 (Consolidated, QoQ)
Revenue up 9% at Rs 1,679.6 crore (Estimate: Rs 1,701.4 crore).
Operating loss at Rs 633.9 crore (Estimate Rs 676.8 crore)
The company said an increase in subscription revenue due to more payment devices, growth in bill payments and disbursements were the main drivers for the top line.
Shares of the company gained as much as 7.7% to Rs 844.7 apiece, before closing 6.4% higher on Monday. Of the 12 analysts tracking the company, six maintain a 'buy', two suggest a 'hold', while four recommend a 'sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 5%.
CLSA
Maintains ‘sell' with target price of Rs 650, implying a potential downside of 14%.
Sharp reduction in processing costs was the key surprise.
The long-term Ebitda trajectory, CLSA thinks is difficult to achieve.
Axis Securities
Maintains ‘buy', raises target price to Rs 1,000 from Rs 940.
Favourable change in business mix and lower cost ratios should drive contribution and Ebitda.
ICICI Securities
Maintains ‘buy' with an unchanged target price of Rs 1,285 based on the customer lifetime value methodology.
Quarter was characterised by reduction in payment processing charges leading to improvement in net payment rates; continued acceleration in lending business with disbursements of Rs 5,600 crore; enhanced contribution/adjusted-Ebitda (before ESOP cost) margins due to increased net payment rates and rising contribution of financial services revenue; sustained growth in monthly transacting users, deployment of offline devices and strong QoQ growth in gross merchandise value.
Remain conservative and expect the company to be adjusted Ebitda-positive by FY25.
Yes Securities
Upgrades from ‘reduce' to ‘neutral' with a revised target price of Rs 850, implying a potential upside of 8%.
Acknowledge improvement in trajectory but await delivery and sustenance of profitability.
Margin improvement was driven better negotiation with banks on rates, optimisations for better transaction routing mainly loading of wallet through UPI, and improved margin in online payments business due to account rationalisation.
Macquarie
Maintains 'underperform' with a target price of Rs 450, implying a potential downside of over 40%.
Due to intense competition in the devices market, Paytm has started offering nil monthly rental on soundbox devices. Macquarie had earlier highlighted that competition and regulation will drive down unit economics and/or growth prospects for Paytm. Understand this is currently an introductory offer by them.
Maintains bearish stance on the stock and recommend investors to use the recent rally to exit the stock.
Competitors like PhonePe which are not listed can continue to be loss leaders and try to capture market share. Paytm being a listed entity has compulsions to show profits. Having said that, the end game is to ultimately lend to merchants and make money. Have repeatedly argued that many fintechs in India are just digital direct selling agents and building balance sheet is critical to achieve success.
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