Macquarie bumps up Paytm target price, calls its quality of portfolio rock-solid

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Analysts at global brokerage firm Macquarie Research gave a double upgrade to fintech giant Paytm’s stocks, taking it to 'outperform' from 'underperform', and raising the target price by 80 per cent from Rs 450 to Rs 800.

Due to a sustained reduction in losses, the once bearish analysts said they have seen a 'very visible change in approach of management to deliver profit' by the firm, owing to its recently reported profitability.

Paytm reported operating profitability in the December quarter, three quarters ahead of its earlier guidance of achieving this target by the September 2023 quarter. The fintech posted revenue growth of 41 percent to Rs 2,062 crore in Q3, compared to the year-ago period, while net loss narrowed to Rs 392 crore.

"We have checked with some of their largest partners about the quality of the portfolio, which is being originated by Paytm and stands rock-solid," said Suresh Ganapathy, banking analyst at Macquarie Capital Securities, in an exclusive conversation with CNBC-TV18.

"And that gave us the belief that maybe there is some merit to the third-party distribution of loan products that they are doing, and therefore it definitely warrants an upgrade considering the risk-reward where the valuations are and where the earnings projections are likely to be going forward,” he added.

Also Read: Paytm posts 327% spurt in credit offtake at Rs 3,928 crore

Meanwhile, Macquarie, in a note earlier this week, also flagged risks and warned about the failure of the BNPL (buy now pay later) model, competition, and regulatory and corporate governance issues. It further said that the financial services distribution business is the biggest driver of profitability.

Meanwhile, shares of Paytm parent One 97 Communications slumped more than eight percent intra-day on February 10 after large block deals took place on the bourses. Around 2.1 crore shares of Paytm, which represents 3.4 percent stake in equity, changed hands through block deal. The buyer and seller could not be ascertained immediately.