Paytm shares have had an abysmal run on the stock exchanges since listing in November this year. After its recent downfall, analysts at Goldman Sachs have now trimmed their target price for the fintech giant. However, the new target price still presents a strong 74% upside potential for the stock battered on Dalal Street. Currently Paytm stock trades at Rs 918 per share, down 57% from the IPO price of Rs 2,150 apiece. Paytm has garnered bullish outlooks from Morgan Stanley and JP Morgan, while bearish view from Macquarie. Goldman Sachs has initiated the coverage of Paytm in December last year.
Target price shaved but strong upside seen
“We believe Paytm remains well-positioned to capture the share of digital payments in India and view Paytm’s business model as characterized by the network effect. However, we note that competitive intensity across most of Paytm’s verticals is quite high, while the regulatory landscape across Paytm’s businesses is also fast evolving,” said Goldman Sachs in a note. The foreign brokerage firm has a ‘Neutral’ rating on the stock and has trimmed the target price from Rs 1,630 per share to Rs 1,600 apiece. This implies an upside of 74%.
Paytm business highlights
Analysts highlighted that Paytm reported gross merchant value (GMV) of Rs 2.5 lakh crore in the October-December quarter which according to Goldman Sachs is 24.6% share of India’s digital payments and an 800 bps expansion over the last 12 months. However, share of UPI, which results in no revenue, has gone up. Further analysts pointed out that loan disbursals for Paytm saw 73% on-quarter growth in the third quarter to Rs 22 billion. “As of December 2021, Paytm is annualizing $1.4 billion in disbursals (across postpaid, personal loans and merchant loans), vs $300 million in December 2020,” they added.
Although Paytm is expected to get a Small Finance Bank license this year, Goldman Sachs does not see that impacting the company investment thesis. “We believe Paytm will continue to operate as a platform, and while an SFB licence would make PPBL eligible for lending, we believe PPBL is likely to be one of the many lending partners on Paytm, though economics could be somewhat better for Paytm with PPBL vs others,” it added. Paytm is eligible for a small finance bank license, five years after the launch of Payments Bank.
Valuation watch
Talking about the valuation of the company, a heated topic of the discussion, analysts said that the current price is implying a multiple of 6.2x for its payments business. They added that while Paytm dived over 30% in the last one month, Paytm’s peer group sharply de-rate in the last one month, with median CY22 EV/Sales for peer group at 7.9x, vs 7x for Paytm. “We note that Paytm’s FY22-25E sales CAGR at 34% is higher than global peers at 26%.”
Introduction of MDRs on UPI and benefit from potential interchange on wallets; Faster than expected scale-up of the lending business, resulting in improving profit profile; Approvals for the Raheja QBE transaction and an SFB (small finance bank) license; and Market share caps on competition aiding payments GMV growth for Paytm are some of the upside catalysts for the stock. On the other hand Cap on wallet or credit card MDRs; rapid increase in competition from other platforms including Whatsapp Pay are some of the downside catalysts
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