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Paytm may report 70% growth in revenue: Goldman Sachs

Paytm stock is currently down 57% from its issue price of Rs 2,150. It will announce December quarter earnings on February 4.

January 31, 2022 / 06:54 PM IST
 
 
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Foreign brokerage firm Goldman Sachs expects fintech major Paytm's owner One97 Communications Ltd to report 70% topline growth year on year for the December quarter, while operational losses are likely to expand on higher ESOP expenses.

The brokerage firm also trimmed the target price of Paytm to Rs 1,600 from Rs 1,630 earlier, which is still nearly 74% higher from its today's closing price. The brokerage firm has remained neutral on the stock.

Paytm stock is currently down 57% from its issue price of Rs 2,150. It will announce December quarter earnings on February 4.

"We expect non-UPI GMV growth of 62% YoY in 3QFY22 for Paytm, an acceleration vs 52% in 2Q; coupled with strong growth in financial services revenues (280% YoY), we forecast 70% YoY topline growth (vs 64% in 2Q) for Paytm in 3Q," said Goldman Sachs in its latest report.

"Our analysis suggests 3Q was another quarter of market share gains for Paytm in the payments vertical, a trend we expect to continue. We forecast cash burn for Paytm to marginally improve qoq, but expect higher reported EBITDA losses on account of increased ESOP expenses," it added.

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The brokerage firm said the investors' focus will be on translation of Paytm's robust reported gross merchandise value (GMV) growth and disbursals into revenues as well as further clarity on potential merchants discount rate (MDR) regulations.

"We believe Paytm remains well-positioned to capture share of digital payments in India and view Paytm’s business model as characterized by network effect. However, we note that competitive intensity across most of Paytm’s verticals is quite high, while the regulatory landscape across Paytm’s businesses is also fast evolving" the Goldman report said.

Recently, the firm reported a 123% year-on-year jump in its GMV to Rs 2.50 trillion for the third quarter, according to provisional data. The brokerage firm says this jump in 123% GMV is 24.6% share of India’s digital payments, and a 800 basis points expansion over the last 12 months. However, Goldman estimates that the share of UPI in its GMV has further gone up to 53% in the third quarter versus 47% in the second quarter. UPI GMV does not generate revenues hence it cut its payments revenue to account for faster mix shift towards UPI, the brokerage firm added.

Goldman Sachs expects marketing and promotional costs to remain elevated at around 18% of revenue in the quarter due to higher competition. Last quarter it was at 17% of revenue. However due to fixed cost operating leverage, EBITDA margin will likely improve to minus 30% from minus 40% or absolute cash burn of Rs 400 crore. Due to ESOP charges its EBITDA losses are likely to expand by minus 57% in the quarter.

Growth in financial services and commerce seen at 280% and 65% year on year, while its payment take rate may further decline to 0.35% in the quarter from 0.39% a quarter ago.

" We forecast GMV/revenues for Paytm to grow 6x/5x from FY22E levels to reach US$653 bn/US$3 bn by FY30E, with an adjusted EBITDA margin of c.30%. However, we note that competitive intensity across most of Paytm’s verticals is quite high, which we expect to impact Paytm’s near-term earnings and hence forecast EBITDA to turn positive only by FY25E; we note that apart from payments, Paytm is yet to reach a dominant scale in any other vertical. The regulatory landscape across Paytm’s businesses is also fast evolving, with multiple guidelines and potential regulations that could positively or negatively impact Paytm", the Goldman report added.



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Moneycontrol Research
first published: Jan 31, 2022 06:54 pm
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