Paytm shares zoom 4% as Citi starts coverage with 'Buy' rating; good time to invest?

Shares of fintech major Paytm jumped over 4 per cent to hit an intraday high of Rs 691.70 on BSE after global financial major Citi initiated its coverage with a 'Buy' rating and a target price of Rs 910.

Currently, the stock is down over 65 per cent from its all-time high of Rs 1,961.05. It opened a tad higher at Rs 675 against the previous close of Rs 661.85. With a market capitalisation of around Rs 44,000 crore, the shares stand higher than 5 day and 20 day moving averages but lower than 50 day, 100 day and 200 day moving averages.

Citi noted that the stock has declined 70 per cent since IPO, in-sync with global fintech de-rating in the last six months, compounded by potential regulatory headwinds and concern about profitability in the payments vertical.

"We think these views may be too pessimistic and at CMP, valuations look attractive & pricing in most of the downside. We think Paytm has several potential levers to drive scale and improve profitability substantially, leveraging its high-frequency user base of 71mn MTUs and 25 million merchants," Citi added.

"We value Paytm on a SOTP basis, yielding a target price of Rs 910 per share. Paytm currently trades at 7x FY24E EV/Gross Profits, a substantial discount to Zomato/Nykaa which trade at 12x/27x FY24E EV/GP. At our target price, Paytm will still trade at a discount at 11x multiple," it said in its recent report.

However, Citi mentioned new BNPL and Digital Payments regulations, and competition in digital lending as the key downside risks. It added that the continued scale-up of financial services is critical for profitability.

Recently, the company released its operating metrics for the fourth quarter. Paytm said that the lending business has scaled to 6.5 million loan disbursals, which is a 374 per cent on-year growth, during the quarter ended March. This aggregates to a total loan value of Rs 3,553 crore, which is a year-on-year growth of 417 per cent.

The offline payments business has accelerated by 90,000 devices this quarter, taking the total number of deployed devices to 2.9 million in three years. Paytm further added that it presently deploys about 1,000 devices per day. They also expect a rise in the number of merchants eligible for loans.

Vijay Shekhar Sharma-led One 97 Communications made a tepid debut on November 18 last year. The scrip got listed at a discount of 9.30 per cent at Rs 1,950 on the NSE against the issue price of Rs 2,150 per share.