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Paytm’s second quarter results: Goldman Sachs, JP Morgan, BoFA reiterate ‘Buy’ rating

Paytm’s second quarter results: Goldman Sachs, JP Morgan, BoFA reiterate ‘Buy’ rating


Bullish on Paytm‘s outlook and EBITDA breakeven by September 2023, the major research firms have reiterated their ‘BUY’ ratings on Paytm. The company beat analyst estimates, and registered a growth of 76% in revenues y-o-y to Rs 1,914 crore.
Top brokerage firms such as JP Morgan, Morgan Stanley, Goldman Sachs, Dolat Analysis & Research Themes, and CITI have extended their confidence in Paytm’s performance. On average, analysts from top firms like Goldman Sachs, CITI, JP Morgan, Axis Capital, and ICICI Securities expected the company’s revenue to be Rs 1,836 crore — a growth of 69%.
‘Consistent improvement in profitability is a key catalyst for the stock’
Research firm Goldman Sachs has mentioned: “Paytm reported another quarter of narrowing EBITDA at Rs (1.7) bn in 2QFY23, improved by 40% QoQ, with numbers better than our expectations across both topline and EBITDA. We have further raised our estimates for Paytm on the back of results, and we see ‘consistent improvement in profitability as a key catalyst for the stock’, and expect multiples for the stock to re-rate higher as Paytm approaches adjusted EBITDA breakeven by mid-CY23. Any potential market share caps on UPI (currently applicable from Jan ’23), and resolution of ban on Paytm Payment Bank Ltd (PPBL) are other key near term catalysts in our view.”
With Paytm in its conviction list, the firm has kept the target price at Rs 1,100. It has viewed Paytm as one of the most compelling growth stories within internet coverage and has raised the FY24 revenue estimates by 13% since initiation in Dec ’21. It has mentioned Lock-in expiry could be an overhang but fundamental story remains and expect a 40-50% revenue growth for next few quarters.
On delivering a sharp improvement in EBITDA margins, analysts at JP Morgan said: “The company achieving EBITDA breakeven ahead of the schedule is supportive, and we have raised the target price from Rs 1,000 to Rs 1,100. We have increased Contribution margin assumptions to 44.5% and 46.2% from 43.8% and 44.9% for FY2023 and FY2024, respectively.” The report has mentioned that it now estimates full year EBITDA profitability in FY2024 (previously FY2025).
Considering the industry view ‘attractive’ for the company, brokerage firm Morgan Stanley has said: “F2Q23 revenues were broadly in line with our estimate. GMV growth was strong, with improving payment spreads. Strong loan disbursement drove continued acceleration in revenue mix toward financial services. Contribution margin improved QoQ, and EBITDA margin was (9)%.”
Reviewing the results, even Paytm’s strongest critic so far brokerage firm Macquarie Research mentioned that Paytm has recorded a ‘Solid Q2’. The report further added that Paytm’s EBITDA losses (before ESOP cost) narrowed to 9% of revenue in 2QFY23 versus 16% in 1QFY23. “Momentum in the financial services distribution business was healthy in 2Q; though the share of merchant loans remains low. There is no change in the Target Price of Rs 450,” said the report.
Meanwhile, BoFA Securities increased the target price to Rs 730. The key highlight of the management is in three focus areas – Platform expansion, revenue growth across all businesses and improving unit economics while generating operating leverage. “We have increased the Target Price from Rs 700 to Rs 730 and maintained Neutral mainly on account of higher revenue and profit estimates. Paytm looks at small and big opportunities to improve profitability of all businesses. It expects to benefit from a positive mix effect from lending business, which would grow faster and has higher margin.”


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