Paytm rallies 8% to hit over 9-month high on BofA Securities 'buy' call

The brokerage firm BofA Securities upgraded the stock to 'Buy' on the back of strong revenue momentum and operational leverage, which can surprise on consensus estimates.

Shares of One 97 Communications, digital payments from Paytm's parent, rallied 8 per cent to hit over nine-month high of Rs 785.50 in Thursday’ intra-day trade after brokerage firm BofA Securities upgraded the stock to ‘buy’ on the back of strong revenue momentum and operational leverage. The foreign brokerage firm upgraded target to Rs 885 per share.

In the past two trading days, the stock of fintech company surged 11 per cent. It traded at its highest level since August 22, 2022. The stock has bounced back 79 per cent from its 52-week low level of Rs 439.6, which it had touched on November 24, 2022.

Meanwhile, in the first two months of 2023-24 (April and May), the total loan disbursals via Paytm stood at Rs 9,618 crore, according to a regulatory filing by its parent One97 Communications. This is, therefore, 169 per cent higher than Rs 3,576 crore recorded in these two months last year. In May alone, the platform lent loans worth Rs 5,502 crore.

The total number of loans was up 54 per cent to 8.5 million during the period as compared to 5.5 million in the same period last year.

Paytm said the company continues to see growth in distribution of postpaid and personal loans. It has partnered with large NBFCs and banks and continues to focus on quality of loans distributed through its platform. Currently, the company has 7 lending partners and further aims to onboard 3-4 partners in FY 2024.

Analysts at Motilal Oswal Financial Services estimate Paytm to achieve Ebitda (earnings before interest, tax, depreciation, and amortisation) breakeven by FY25 and value Paytm based on 18x FY28E EV/Ebitda, and discount the same to FY25E taking a discount rate of around 15 per cent.

The brokerage firm it thus value the stock at Rs 900, which implies 4.5x FY25E P/sales.

Paytm reported a healthy Q4FY23, with sustained momentum in GMV and robust growth in disbursements. This, coupled with a strong traction in subscription devices, led to healthy growth in overall revenues, said analysts.

"Gradual improvements in operating leverage boosted contribution margin to 52 per cent, (ex UPI incentives). Adjusted Ebitda improved further to around 5 per cent (ex UPI incentives). We believe that a constant improvement in contribution margin and operating leverage will continue to drive operating profitability," the brokerage firm added.