Paytm likely to clock sustained growth in Q4 operating profitability, says Citi; raises target price

Paytm is likely to report a decent fourth quarter with further improvement in net payment and overall adjusted EBITDA margins, partly aided by recognition of annual UPI payouts from the government.

“More importantly, sustained momentum in the lending distribution business (+25% QoQ in disbursals) as well as a broader focus on monetization imply Paytm is well positioned to clock sustained growth in operating profitability ahead,” Citi said.

The brokerage has raised the estimates for FY24/FY25 by 6%/5% on expectations that the financial services segment will continue to see strong growth momentum.

The adjusted EBITDA has been revised upwards by 31% for FY24 and 7% for FY25.

For the fourth quarter, Citi expects Paytm to report net payment margins at 15.7 bps, up 240bps quarter-on-quarter, while contribution margins are seen at 52.8%.

Paytm has already reported average monthly transacting users (MTUs) at 90 million for the quarter, up 27% year-on-year, and merchant payment volumes GMV for the same period came in at Rs 3.62 lakh crore ($44 billion), showing a growth of 40%.The internet company has disbursed loans worth Rs 4,468 crore in March 2023 through the Paytm platform.

On Thursday, Paytm shares closed 0.36% higher at Rs 645.65 on NSE. So far this year, the stock is up about 21%.

Recently, Motilal Oswal has initiated coverage on Paytm with a “buy” rating and a target price of Rs 865.

Paytm has narrowed its losses in the third quarter to Rs 392 crore and has turned positive at the operating level three quarters ahead of its guidance.

Motilal said Paytm has achieved a breakeven in adjusted EBITDA during 3QFY23, well ahead of its guidance and it believes a constant improvement in contribution margin and operating leverage will continue to drive its operating profitability.