Paytm Gets 'Buy' Rating From Motilal Oswal A Rs 865 Per Share

Motilal Oswal’s April Research Report marks One97 Communications, the parent company of Paytm with a 'buy' rating target price of Rs 865 per share, representing a 34 per cent jump to its current market price.

According to the report despite the Covid-19 slowdown, Paytm stood at a stronger growth in its Gross Merchandise Value (GMV), with a Compound Annual Growth Rate (CAGR) of 55 per cent from FY19-23. Subsequently, the finance company’s GMV picked significant speed after Covid, clocking a CAGR of 81 per cent from the financial year 2021 – 2023.

With the increasing popularity of digital payments, Motilal Oswal is optimistic about Paytm’s GMV growth and hopes it continues to record a healthy CAGR of 27 per cent over the financial year 2023 – 2025.

The report further highlighted Paytm's Monthly Transaction Users (MTUs) growth to 90 million as of FY23, while the subscription payment devices boost to 6.8 million. The estimated growth will continue if the penetration among merchants remains low adding to 1 million devices per quarter, said the finance research, underlining a healthy payment revenue at 21 per cent CAGR over FY23-25.

In the financial business, Paytm primarily offers three types of loans, postpaid, personal loans and merchant loans adding to its increased financial revenues by 19 per cent in 9MFY23, just a 4 per cent rise from FY19. Considering these figures, the research predicts with faster growth in GMV, merchant acquisition and cross-sell rate, Paytm’s financial revenue will have a 58 per cent CAGR over FY23-25.

Further, its lending business demonstrated robust traction in loan disbursals with the total number of loans disbursed surging 4.6x YoY in FY23 (4.4x in FY22), analysing the number Oswal marked the total growth in unique borrowers, a rise from 1.4m QoQ to 8.1m in 3QFY23.

It added, considering the penetration of the finance company it is supposed to remain lower at 0.8-5.2 per cent of MTU thus marking future disbursements to register at 64 per cent CAGR over FY23-25.

“We thus value Paytm based on 18x FY28E EV/EBITDA and discount the same to FY25E taking a discount rate of approx. 15 per cent thus valuing the stock at Rs 865, which implies 4.5x FY25E P/Sales”, said the brokerage firm warning about the key risk at RBI approvals for onboarding new customers in Payment Bank and securing a license for Payment Aggregator that is critical for long-term growth.