Paytm stock climbs 4% as street expects robust Q4

Paytm

The share price of One97 Communications, which owns Paytm, has gained 4 percent in the early trade on May 5 ahead of its Q4 result. Paytm is expected to release its quarterly results for the March-ended quarter on May 6 with analysts largely anticipating a robust performance for the quarter.

According to market expectations, Paytm is likely to report healthy Q4FY23 results on a sequential basis on the back of improved numbers on loan disbursal as well as new device addition front, according to analysts at Yes Securities who have given the stock a ‘Neutral’ rating with a target price (TP) of Rs 700.

Foreign brokerage firm Citi also expects Paytm to report a decent Q4FY23 with further improvement in net payment margins and overall adjusted EBITDA/EBIT margins, partly aided by recognition of annual UPI pay-outs from the government this quarter. Sustained momentum in the lending distribution business (25 percent QoQ in disbursals) as well as a broader focus on monetisation, imply Paytm is well-poised to clock sustained growth in operating profitability ahead, it said with a TP of Rs 1,103.

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The brokerage also believes the recent regulatory announcements related to Wallet interoperability and credit lines on PPI wallets are positive for Paytm, adding that the resolution of the RBI-IT-Audit could be the key. “We think the ongoing funding winter (for start-ups) and increasing regulatory requirements for the fintech space imply consumer-fintech sees market share consolidation ahead, big players should benefit,” it added.

Revenue growth is expected to come at 49 percent year-on-year (YoY), according to Goldman Sachs adding this would be the second consecutive quarter of positive margin. It is expecting a 10 percent adjusted EBIDTA margin for Paytm in the March quarter or 3 percent margin, excluding Rs 170 crore of estimated UPI incentives. It said this is against a minus 24 percent margin in the same quarter a year ago.

Recently, domestic brokerage firm Motilal Oswal initiated coverage on the stock with a ‘buy’ rating and a TP of Rs 865.

“Paytm has achieved breakeven in adjusted EBITDA during 3QFY23, well ahead of its guidance. We estimate contribution margin to improve to 56.8% by FY25 from 30% in FY22, fueled by improvement in operating leverage and rise in financial business mix,” it said in a research note.

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The company has grown its Monthly Transacting Users (MTUs) to 90 million as of FY23 which provides a ready customer base to cross-sell financial products to consumers. At the same time, robust growth in subscription devices has helped improve throughput and supported growth in merchant loans, it added.

The fintech player's share price has improved by over 20% in the past year, however still trades significantly lower than its November 2021 listing price of Rs 1,950, shedding over 55 percent since then.

At 10.53, the scrip was trading 3.01 percent up on the NSE at Rs 691.05 with benchmark Nifty trading 0.24 percent down at 18,212.25 points.

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