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Paytm share rallies 8% as Emkay upgrades to 'Buy' from 'Add', lifts target

The northward movement in the Paytm share price came after domestic brokerage Emkay upgraded the stock to 'Buy' from 'Add'. It also raised the target price to Rs 1,050, from 750 earlier

Paytm

Paytm(Photo: Reuters)

Tanmay Tiwary New Delhi

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Paytm share price: Shares of payment aggregator Paytm, owned and operated by One 97 Communications, were buzzing in trade on Thursday, January 16, 2025, as the scrip rallied up to 8 per cent to hit an intraday high of Rs 926.95 per share, on BSE. 
 
However, at 10:49 AM, Paytm shares were off day’s high, and were trading 7.24 per cent higher at Rs 920.40 per share. By comparison, BSE Sensex was trading 0.33 per cent higher at 76,973.78 levels.
 
The northward movement in the Paytm share price came after domestic brokerage Emkay upgraded the stock to ‘Buy’ from ‘Add’. It also raised the target price to Rs 1,050, from 750 earlier. The target price indicates an upside of 22.34 per cent from its previous close (January 16) of Rs 858.25 per share.
 
 
“We upgrade our earnings estimates over FY26-31E by 20-40 per cent factoring in better revenue trajectory/cost optimisation measures and discounted cash flow (DCF)-based target price (TP) to Rs 1,050 (earlier Rs 750), implying FY27E enterprise value (EV)/Op Rev at 4.5x and price-to-book (P/BV) at 4.2x. We upgrade our rating to ‘Buy’ from ‘Add’ and believe that recent correction in the stock offers an attractive entry point given the reasonable valuations (FY27E EV/Op Revenue at 3.1x, P/B at 3.4x),” said Anand Dama, Nikhil Vaishnav and Kunaal N of Emkay, in a note. 
 
Additionally, Paytm’s post-stake sale position in PayPay Corp, which has improved the company's cash to market capitalisation ratio to 21 per cent (up from Zomato’s 5 per cent), provides a strong margin of safety. This, analysts believe, could be leveraged for organic or inorganic growth, or even for rewarding shareholders through dividends or stock buybacks. Analysts also see potential for a positive catalyst if regulatory approvals are granted for a payment aggregator licence.
 
Meanwhile, here are the top factors behind Paytm’s upgrade: 
 
Robust merchant franchise to boost payments, lending revenues
 
According to Emkay, Paytm has effectively maintained its merchant base (42 million as of Sep-24), and the anticipated payment aggregator licence from the RBI is expected to facilitate the onboarding of new online merchants, thereby accelerating gross merchandise value (GMV) growth (projected at 32 per cent over FY25-28E). The share of device merchants has surged to 27 per cent from approximately 4 per cent in the past three years, contributing to strong subscription revenues (approximately 40 per cent/19 per cent of payment/overall revenues as of Sep-24), with further acceleration expected. 
 
In parallel, analysts noted that Paytm is witnessing major growth in merchant loans, which, alongside a higher take rate, is helping offset the decline in its PL business, supporting growth in its financial services revenue.
 
Customer base expansion to reaccelerate
 
After receiving approval from National Payments Corporation of India (NPCI) in October 2024, Paytm has started to recover its lost monthly transacting users (MTU) and aims to return to its previous high MTU base of around 100 million over the next 12-18 months at a lower incremental acquisition cost. 
 
Analysts believe that rebuilding the MTU base will not only boost merchant acceptance but will also create opportunities for cross-selling retail financial products such as home loans (HL), gold loans (GL), insurance, and wealth management services, thereby improving revenue per user—a key metric Paytm intends to closely track going forward.
 
Improving operational revenue, treasury income to aid Paytm turn net PAT positive by FY26E 
 
Analysts at Emkay anticipate that Paytm’s operational revenue will grow due to strong traction in merchant device subscription revenue, a rising share of UPI on credit cards with merchant discount rate (MDR), and a flourishing merchant loan business with an improved take rate. 
 
Ongoing cost optimisation initiatives and increasing non-operational income (including treasury income from the recent stake sale in its entertainment business and PayPay Corp.), analysts opined, should propel Paytm into a net profit position by FY26E (excluding one-off gains), ahead of the earlier expectation of FY27E.

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First Published: Jan 16 2025 | 11:02 AM IST

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