Paytm share price to rise over 30% in long term, says Motilal Oswal
Paytm share price has been in continuous uptrend after hitting life-time low of ₹438.35 apiece on NSE. In last one month, One 97 Communications share price has risen to the tune of 18 per cent in last one month, whereas in YTD time, this fintech stock has shot up to the tune of 24 per cent. However, Motilal Oswal still believes that Paytm share price may continue to rise further to the tune of more than 30 per cent in long term. The brokerage has predicted that Paytm share price may go up to ₹865 per share levels in long term.
On why Motilal Oswal is bullish on Paytm shares, the brokerage said, “Digital payments industry is forecasted to double to USD16t by 2026, within which the mix of digital payments is likely to increase to 65%. Thus, digital payments are expected to surge ~3x to USD10t by 2026 from USD3t in 2021. Mobile payments are projected to grow even faster at ~5x to USD3t by 2026. Further, an increase in QR deployment will drive merchant payment, which is likely to jump ~6x to USD2.7t by 2026. Paytm will thus be a big beneficiary from this surge as it has a strong positioning in both digital payments and lending businesses.”
On strong Paytm share fundamentals that may continue to fuel share price rally, Motilal Oswal said, “Paytm has reported a healthy traction in growing its GMV at 55% CAGR over FY19-23. While the growth was slightly softer due to Covid-19, the same picked up strongly post-Covid. GMV clocked 81% CAGR over FY21-23. With increasing use cases, we expect GMV to report a healthy 27% CAGR over FY23-25. Paytm also posted steady growth in MTUs to ~90m as of FY23 while the number of subscription payment devices rose to 6.8m. As the penetration among merchants remains low, we expect the traction to sustain with a quarterly addition of ~1.0m devices. We forecast the payment revenue to thus clock a healthy 21% CAGR over FY23-25.”
On financials of One 97 Communications Limited, the brokerage said, “Paytm’s financial business further augments the profitability of core payment business due to its inherently higher contribution margin. In financial business, Paytm primarily offers three types of loans, viz.: a) Paytm Postpaid – offers short-term term credit of up to INR60k with a period of up to 30 days; b) Personal Loans – offers loans with an average tenure of ~15 months and average ticket size of INR0.12m; and c) Merchant Loans – offers loans with an average tenure of ~12 months and average ticket size of INR0.15m. Paytm does not undertake any underwriting risk and co-originates loans with other financial partners on which it earns a sourcing and collection fee. The mix of financial services revenue has increased to 19% in 9MFY23 from only 4% in FY19. With faster growth in GMV, merchant acquisition and cross-sell rate, we estimate Paytm’s financial revenue to record 58% CAGR over FY23-25.
Giving ‘buy’ tag to Paytm shares, Motilal Oswal said, “Paytm has achieved a breakeven in adjusted EBITDA during 3QFY23, well ahead of its guidance. We believe that a constant improvement in contribution margin and operating leverage will continue to drive its operating profitability. We thus estimate Paytm to achieve EBITDA break-even by FY25 with an EBITDA margin of 3.2%. We further estimate its revenue/contribution profit to grow at 26%/32% CAGR over FY23-28,” adding, “We thus value Paytm based on 18x FY28E EV/EBITDA and discount the same to FY25E taking a discount rate of ~15% thus valuing the stock at INR865, which implies 4.5x FY25E P/Sales. We initiate coverage on the stock with a BUY rating.”
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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