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Paytm rises as Citi bets on faster customer growth versus rival PayU

At current valuations, the overhang risks from further selling by existing pre-IPO shareholders of Paytm are overdone, Citi says.

November 25, 2022 / 09:22 PM IST

The shares of Paytm rose over 5 percent to Rs 464.80 on the BSE on November 25 (Friday) after Citi Research, in its note, said it sees Paytm gaining higher market share in digital payments and hitting faster growth in active customer base in the BNPL segment vis-à-vis its rival PayU.

The research house has a 'buy' rating on the Paytm stock with a target price of Rs 1,055.

"Paytm has gained market share in digital payments vs PayU, although the growth appears comparable on MDR (merchant discounting rate-generating TPV (total payment value) basis at 59 percent YoY for PayU vs 52 percent YoY (Paytm) for January-June 2022. In the BNPL segment, Paytm is seeing faster growth in active customer base vs PayU’s Lazypay. Lazypay’s reported loss rate has increased year to date to 3.1 percent (+30bps versus calendar year 2021) – something to watch out, for the broader BNPL space in India (Paytm has reported stable asset performance across its lending partners’ portfolio with loss rates at 1.1-1.3 percent for the postpaid BNPL product)," the brokerage said in a research note on November 23, 2022.

Also read | PayU India's revenue grew by 38% in the first half of FY23

"We note that Paytm’s business in lending space is distribution (no balance sheet exposure) and therefore its revenue/cost structure are commissions-based. Paytm is trading at 5x FY24E Enterprise Value/Contribution Profits (4x EV/Gross Profits). We acknowledge overhang risks from further selling by existing pre-IPO shareholders and that fintech is in a competitive space but at these valuations, those risks are overdone," it added.

Also read | Paytm spikes on low level buying, positive analyst commentary

Furthermore, on the Indian payments business, Prosus, the PayU parent, said, "In India, our largest payments market, TPV grew 59 percent to $28 billion, and revenue increased 48 percent to $183 million, following increased digitalisation in e-commerce, financial services and bill payments, and a rebound in post-pandemic travel."
Moneycontrol News
first published: Nov 25, 2022 09:18 pm