Paytm shares were in demand on Thursday after Motilal Oswal Financial Services initiated coverage on the digital payments firm's stock with a 'buy' rating and a target price of Rs 865 — implying upside potential of 34.2 per cent from its closing price on Wednesday. The Paytm stock finished higher by Rs 12.6 — or two per cent — at Rs 656.9 apiece on BSE, having jumped by as much as Rs 24.7 — or 3.8 per cent — to touch Rs 669 apiece at the strongest level of the day. 

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The brokerage is of the view that Paytm's two-pronged strategy will likely drive its profitability. Motilal Oswal expects Paytm to achieve a break-even in EBITDA terms by the financial year ending March 2025. 

The estimate comes after Paytm said it achieved adjusted EBITDA break-even in the quarter ended December 2022, well ahead of its guidance. 

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According to Motilal Oswal, Paytm has grown its monthly transacting users (MTUs) to 90 million as of the financial year 2022-23, which provides a ready customer base to cross-sell its financial products to consumers. It also said that robust growth in subscription devices has helped in improving throughput and supported growth in merchant loans.

"Paytm has created a payments-led ‘super app’ and evolved into a comprehensive payments ecosystem covering payments, credit, insurance, merchants, wealth management, e-commerce services et al," Motilal Oswal Financial Services said.  

The brokerage also pointed out that Paytm is among the largest payments platforms with a gross merchandise value (GMV) of around Rs 13.2 lakh crore in the year ended March 2023. Gross merchandise value is a key measure of revenue that determines the total value of merchandise sold over a platform over a given period of time.

ALSO READ: Once bearish on Paytm, Macquarie has a change of heart

Motilal Oswal expects Paytm's loan disbursements to grow at a CAGR of 64 per cent over the three-year period ending March 2025. 

How Motilal Oswal values Paytm

According to the report, Motilal Oswal has valued the Paytm stock basis an embedded value-to-EBITDA multiple of 18 times its earnings for the year 2027-28, discounted to the financial year ending March 2025 at around 15 per cent. 

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