Brokerages bullish on Paytm post Q2 results, see up to 40% upside move - Here's why

All eyes are on Paytm, India’s leading digital payments and financial services company, which has recently received thumbs up from all leading brokerage firms. The company recently announced Q2FY23 results wherein it posted a 76 per cent y-o-y growth in revenue to Rs 1,914 crore. Meanwhile, the company’s losses were reduced by 11 per cent on a sequential basis. The company’s contribution profit surged 224 per cent y-o-y to Rs 843 crore.

Top brokerage firms such as JP Morgan, Morgan Stanley, Goldman Sachs, ICICI Securities, Dolat Analysis & Research Themes, and CITI have extended their confidence in Paytm's strong performance.

What makes the brokerages bullish on the counter is the company's operating leverage along with its consistent growth numbers. JP Morgan had recently issued an Overweight rating, and raised the target price to Rs 1,100, saying Paytm is set to achieve EBITDA breakeven ahead of the schedule, which is supportive.

Meanwhile, Goldman Sachs had recently added Paytm to the Conviction List. The firm views Paytm as one of the most compelling growth stories within internet coverage and raised the FY24 revenue estimates by 13 per cent since initiation in December 2021. Furthermore, it Increased EBITDA before ESOP cost estimates and expects breakeven by mid-FY24 (September 2023) - this is about 2 quarters ahead of consensus estimates of breakeven by March 2024.
 
The company had disbursed 9.2 million loans in Q2FY23, which further accelerated to 3.4 million loans disbursed in October alone, registering a y-o-y growth of 161 per cent. Analysts at Citi Research had said, “Lending distribution – strong disbursal trends with growth driven by up-sell to existing customers – financial services revenues rose 29% QoQ to 18 per cent of revenues (1Q:16 per cent of revenues).”

Paytm’s leadership in offline payments strengthened further with its total merchant subscription devices deployed increasing to 5.1 million. With its subscription as a service model, the strong adoption of devices drives higher payment volumes, and subscription revenues, while increasing the funnel for merchant loan distribution.

Paytm while releasing its Q2 results said that merchant subscriptions is an attractive profit pool, driving higher payment volumes, subscription revenues as well as merchant loan distribution.

Meanwhile, BoFA Securities increased the target price to Rs 730. The report said that the key highlight of the management is in three focus areas – platform expansion, revenue growth across all businesses and improving unit economics while generating operating leverage. The platform’s operating leverage is seen in its growing number of users — the latest numbers show Paytm’s monthly transacting users has crossed 84 million.

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