After Paytm’s listing fiasco and partial recovery in the subsequent days, the company’s path to profitability and current stock price are under a scanner. Another broker after Macquarie, another brokerage JM Financial, has assigned a target price to the stock in the sub-Rs 1300 range.
Paytm’s parent One 97 Communications closed at Rs 1765.60 per share on the National Stock Exchange (NSE) on Friday. This is still 17.6% lower than the Rs 2150 issue price. The stock has managed to destroy nearly Rs 24,000 crore of investor wealth in just 10 days of its listing on the bourses. Its market capitalisation has been reduced from Rs 1.39 lakh crore to Rs 1.14 lakh crore during the period.
“Paytm faces stiff challenges in its customer acquisition engine which would slow down its revenue growth in the core payments business while scale-up of its related ecosystem businesses (Commerce, Cloud and Financial Services) leaves much to be desired. In our view, Paytm will need to keep funding its MTU growth and thus the road to profitability largely relies on the growth trajectory of other businesses”, said JM Financial.
While BNPL, loan origination, merchant credit offer a large opportunity canvas, building a successful lending business is a long drawn process and requires razor-sharp focus and top-notch execution against formidable opponents. Also, Paytm will need to adapt itself to this evolving regulatory environment for digital lenders; this, in our view, is likely to get stringent than conducive, it added.
“We forecast GMV CAGR of 41.1%, revenue CAGR of 36.1% and GMV/MTU CAGR of 18.2% over FY21-26E for Paytm. However, even with our robust growth expectations (which in turn are a function of its ability to fund MTU growth through cashbacks, discounts), and an EBITDA breakeven by FY27E, we find valuations rich and the path to profitability fraught with high execution risks in context. Our target price of Rs 1,240 is based on 55x FY30E EV/EBITDA discounted back to FY24,” said JM Financial in a note to investors.
On Saturday, the fintech company reported a net loss of Rs 461 crore for the September-ended quarter as compared to Rs 390 crore loss in the same period last year. Net losses during previous quarter this year were at Rs 394 crore.
