Paytm shares rise 5% in early trade: Key factors behind the rally

Paytm share price NSE, Paytm share price target: Shares of One97 Communications, which operates Paytm, rallied 5 per cent on Friday to touch a high of Rs 809.9 in early morning deals on the bourses. The stock finished at Rs 813.75, up by Rs 41.75 or 5.41 per cent on the NSE, up from the previous close of Rs 772. The scrip gained after the brokerage firm BofA Securities upgraded the counter to 'buy' with a target price of Rs 885 on the back of strong revenue momentum and operational leverage.

Bank of America Global Research said in its report, "We find Paytm well positioned to continue to dominate the SME merchant landscape where the subscription model via Soundbox is improving merchant stickiness. We expect Paytm's momentum in BNPL and merchant lending to continue, albeit at a slower pace, leading to a 34% revenue CAGR from FY23–26."

"We see Paytm's margins improving on the back of a revenue mix shift towards high-margin Soundbox and lending revenues. We estimate adj. EBITDA margins to improve from -2% in FY23 to 8% by FY26. We think operational leverage could further surprise both ours and consensus estimates," the report added.

Calling Paytm to be in a "sweet spot" with limited competition, the brokerage further said, "In the last six months, the competitive intensity has fallen further with most Fintechs struggling due to funding winter, stricter RBI norms, and declining discounts. In the listed space, we consider Paytm as one of the beneficiaries from UPI uptake and potential ONDC traction."

On the other hand, CLSA has also maintained a buy call on the counter with a target price of Rs 850.

Earlier, Paytm registered a 24 per cent jump in its average monthly transacting users (MTU) year-on-year (YoY) at 9.2 crores for the quarter-to-date.

Paytm share price history

Paytm's stock has given a positive return of nearly 29 per cent in the last 12 months (since June 9, 2022). In comparison, the headline index Nifty 50 has rallied nearly 13 per cent.

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