Noida, Oct 27 (APAC Media): Paytm shares declined around 2% after the fintech company announced its second-quarter results. However, brokerages Jefferies, Goldman Sachs and Citi retained their ‘Buy’ ratings on the stock, citing revenue growth, improving operating performance and the potential to generate additional revenue from the monetisation of select UPI transactions.
One 97 Communications, the parent company of Paytm, reported a 976% year-on-year increase in consolidated net profit to Rs 226 crore for the September quarter, compared with Rs 21 crore in the year-ago period. Revenue from operations grew 28% to Rs 2,648 crore.
However, the sharp increase in net profit was partly influenced by a decline in exceptional expenses, which fell to Rs 4 crore from Rs 190 crore a year earlier. Profit before exceptional items rose 9% year-on-year to Rs 229 crore.
Jefferies Sees 33% Upside
Jefferies retained its ‘Buy’ rating on Paytm and set a target price of Rs 2,150, implying an upside potential of around 33% from the reference price used in its assessment.
The broking cited sustained business growth, an improvement in financial services revenue and greater operating efficiency as key factors supporting its outlook. It expects the company to maintain a compound annual growth rate of around 25%.
The potential introduction of merchant discount rates (MDR) on selects UPI transactions could provide an additional revenue stream and support payment margins. Paytm estimates that the opportunity could translate into a benefit of 2.5 basis points of gross merchandise value.
Goldman Sachs Cuts Target Price to Rs 2,010
Goldman Sachs maintained its ‘Buy’ rating but reduced its target price to Rs 2,010 from Rs 2,070, citing higher-than-expected spending on devices.
The broking said revenue growth, expanding EBITDA margins and momentum in financial services were positive indicators. It estimated that the potential UPI MDR opportunity could generate Rs 8-9 billion in EBITDA in FY28.
However, increased investment in payment devices could raise depreciation and amortisation expenses, leading the broking to lower its earnings estimates and target prices.
Citi Raises Target to Rs 1,940
Citi retained its ‘Buy’ rating and raised its target price to Rs 1,940 from Rs 1,560, reflecting its assessment of Paytm’s operating performance and growth prospects.
The broking noted that the company’s second-quarter EBITDA and earnings before interest and tax (EBIT) exceeded its estimates by 4% and 1%, respectively.
Revenue from financial services grew 49% year-on-year, accelerating from 45% growth in the preceding quarter, indicating continued momentum in the lending and distribution business.
Outlook
Brokerages also pointed to improving payment margins, investments in technology and efforts to expand the merchant and consumer base as factors that could support future growth.
Despite the positive outlook, higher device-related expenditure and the need to sustain profitable growth remain key factors for investors to monitor. The potential contribution from UPI monetisation will also depend on regulatory developments and the implementation of applicable pricing structures.
The broking assessments indicate confidence in Paytm’s operating trajectory, although differences in target prices reflect varying assumptions about costs, earnings growth and the pace of monetisation.
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Disclaimer: This article is for informational purposes only and is based on publicly available information. APAC Media is not responsible for investment decisions or losses. Please conduct your own research or consult a financial adviser before investing.
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