Paytm stock price: UBS sees 21 per cent growth in sales compounded annually over FY24-28. It said operating leverage will play out as marketing expense requirements ease and ESOP cost moderates
Foreign brokerage UBS has initiated coverage on One97 Communications Ltd (Paytm) with a 'Buy' call and a target price of Rs 900. The brokerage cited Paytm's discount to domestic and global peers and said continued monetisation and Ebitda break-even would drive re-rating on the counter.
UBS expects Paytm to see a moderation in top line growth. It sees 21 per cent growth in sales compounded annually over FY24-28. It said operating leverage will play out as marketing expense requirements ease and ESOP cost moderates. It expects the company to break-even in FY25 and reach 20 per cent Ebitda margin by FY28. "We view this as a key re-rating trigger, as seen at other new-age companies such as Zomato Ltd, where investors value profitable growth more than pure growth," UBS said.
UBS said Paytm is trading at 18 times FY26 EV/Ebitda and 2.2 times FY26 EV/net sales, which are at a material discount to global payment and Indian internet peers. It values Paytm's core business on DCF basis. "We view Ebitda break-even and Ebitda growth thereafter as a key re-rating trigger. We initiate coverage with a Buy rating and a Rs 900 price target," the brokerage said.
UBS said Paytm's profitability has progressed, with contribution margin improving to -55 per cent of revenue in FY24 and Ebitda (ex-ESOP costs) turning positive. This, it said, has been aided by deceleration in payment processing fees growth (improving payment margin) and marketing-related costs (a combined 50 per cent of costs). "We believe the market is overestimating the marketing cost requirements of the business. since most of Paytm's customer acquisitions have been done. Our FY26-28 Ebitda estimates are 8-14 per cent above consensus," it said,
UBS said Paytm's omni-channel payment business has earned it a 25 per cent industry GMV share Meanwhile, its large top-of-the-funnel payment business has accelerated monetisation across merchant devices and loans. UBS said regulatory issues have passed for payments and expect Paytm to benefit from a 24 per cent CAGR in the payment player fee pool in FY23-28E. Beyond payments, Paytm's loan origination has grown 7 times in FY22-24E, with lending partners rising to nine in FY24 from four in FY22.
"We like Paytm's merchant loan business, as Paytm's proprietary merchant data and daily settlement provide early delinquency indications. We forecast an overall revenue CAGR of 21 per cent in FY24-28E," it said.
