Broker’s call: Paytm (Add)

Posted on by

Target: ₹750

CMP: ₹681.35

We upgrade One 97 Communications (Paytm) to Add, while elevating our DCF-based TP to ₹750/share (earlier ₹375), implying 3.6x/3x FY26E/27E EV/Operating revenue, as the easing regulatory stance should pave the way for approvals from NPCI/RBI to onboard new users/online merchants soon and, thus, drive business turnaround. This, coupled with strong cost optimization measures, should put Paytm on an early path to profitability.

Management expects the loan distribution business to gradually re-accelerate, led by merchant loans with relatively better take rate/asset quality to do the heavy lifting in the near-to-medium term before PL and other products in the beta stage pick up pace. Paytm’s broking and insurance distribution business is gaining scale and has already turned profitable. It has sold its operationally heavy entertainment business in Q2, which should boost cash buffers as well as reduce net loss in FY25E; it remains open to offload any other non-core business.

Factoring in the higher cost optimisation, we expect Paytm to again turn operating EBITDA (ex-ESOP and UPI incentive) positive by Q4-FY25E, when gradual business acceleration/reduction in ESOP costs should help it turn overall EBITDA/PAT positive by FY26/FY27 (earlier FY27/FY28).