Citi initiates coverage on Paytm with buy rating; says valuations attractive, downside risks priced in—check target price

Global brokerage firm Citi was bullish on the shares of One 97 Communications (Paytm), saying the online payment solution provider firm has been witnessing steady improvement in payments monetization and scaling up financial services rapidly.  

It is of the view that valuation of Paytm is relatively reasonable in comparison to peers. It expects Paytm's Gross profits to grow at 37% CAGR over FY22-26E and contribution margins to expand from 30% in FY22 to 39% in FY26E (37% in FY24E). 

"The stock has declined materially from its IPO price of Rs2,150/sh, partly in line with fintech sector de-rating in the last six months, compounded by concerns on profitability in the core payments business and regulatory headwinds in India. At CMP, we think valuations are attractive and are pricing in most of the downside risks," it said. 

The brokerage house initiated coverage with a buy rating for target price of Rs 915, which translates into an upside of 52% on Friday's closing price of Rs 600.60 per share.  

It feels Paytm has several existing and emerging levers to drive long-term platform stickiness (BNPL, Devices, etc.) and improve overall profitability (Financial Services) in the business. 

"WWe value Paytm on a SOTP basis (details inside). Paytm currently trades at 6x FY24E EV/Gross Profits, a substantial discount to Zomato/Nykaa which trade at 10x/20x FY24E EV/GP. Key downside risks: new BNPL and Digital Payments regulations, competition in digital lending, sustainable scale-up of financial services is critical for profitability. We resume coverage with a Buy," said the brokerage. 

Paytm stock price history 

The counter has seen a huge correction since its debut on the exchanges. At the issue price of Rs 2150, Paytm has corrected more than 72% so far.  

The stock was listed at Rs 1,955, slipping 9 per cent from the issue price on the BSE. It then tumbled 20.67 per cent to Rs 1,705.55. 

On Monday, the shares corrected nearly four per cent to trade on the day's low of Rs 578.50 per share on the BSE. 

Paytm shares listing price 

Shares of One97 Communications Ltd, Paytm's parent company, had made a tepid debut on the exchanges at Rs 1,955 per share, a discount of over 9 per cent from the issue price of Rs 2,150.