Goldman Sachs said despite Paytm facing headwinds and valuation contraction, it sees the business model as continuing to show strong traction. It added that within its internet coverage, it views Paytm as one of the most compelling growth stories at an attractive price.
Manish Adukia, the analyst at Goldman Sachs who wrote the report published on September 22, said his earnings estimates are currently 5 and 24 percent ahead of consensus on FY25 revenue and adjusted EBITDA, respectively.
“We expect elevated growth in high-margin segments to lead to faster profitability,” he said.
Adukia has a target of Rs 1,100 on the stock, which is a potential upside of 60 percent from the previous close price. He reiterated a ‘buy’ rating on the stock.
In the current year, the company has regularly posted strong growth in its loans business, claiming multifold growth. However, the stock has not performed as per expectations. Another overhang on the stock is the lock-in expiry for insiders when 86 percent of Paytm’s outstanding shares will be free to be sold in November 2022. However, Goldman Sachs believes this is a minor issue.
“We expect Paytm to deliver about 50 percent revenue growth for the next few quarters and continue its transition from an erstwhile payments-only business to one with a strong financial services portfolio,” Adukia said.
As a consequence, we expect margins to further improve, and forecast FY24 to be the first full year of adjusted EBITDA profitability for Paytm, and see this as a key catalyst for the stock.
As per its estimates, the company may turn profitable in FY25. It sees the company’s earnings per share (EPS) to be Rs 2.98 in FY25 from a loss of Rs 38.45 per share in FY22.
Regulations have remained a key focus area for Paytm investors, and in Goldman Sachs’ view, recent developments such as digital lending guidelines, UPI through credit card, RBI’s payments vision document, etc. are largely neutral to positive for Paytm.
“We believe the RBI’s discussion paper on payment charges and ensuing guidelines could help resolve another overhang for Paytm in the near/medium term, and the next catalyst could be the potential resolution of user onboarding ban on Paytm Payments Bank (PPBL), which Paytm recently mentioned PPBL is making good progress with.”Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.