Paytm shares can yield up to 46% return, says Morgan Stanley; Know the details

Paytm shares: Overseas brokerage Morgan Stanley said it gave One 97 Communications (Paytm) an equal weight rating while suggesting a target of Rs 935 on the stock, after the recent sharp drop in the share price and the bet fourth quarter business update. The brokerage sees up to 46% upside in the stock of Paytm’s parent company, One 97 Communications, while meeting its latest assigned price target of Rs 935. Earlier last month, Morgan Stanley had cut the target price to Rs 935 and its ‘equal weight’ rating, when the Reserve Bank of India (RBI) banned Paytm Payments Bank from onboarding new customers due to oversight issues.

On Thursday afternoon, the stock was trading at Rs 627.80 on BSE, down 1.41%. Morgan Stanley’s target suggests a potential upside of 46% in the stock.

The certificate grabbed headlines after the company was guided to break even Ebitda over the next six quarters.

Morgan Stanley noted that Paytm is nearing the end of its current investment phase and the company expects overhead costs to moderate. “We currently expect Ebitda to break even in F25 and will revisit our estimates following Q422 results. Paytm does not expect any impact to its growth trajectory as a result of the above,” Morgan Stanley said.

This brokerage counts the allocation of the merchant discount rate under UPI; introduction of exchange to wallets as it becomes interoperable; better-than-expected execution on financials in terms of underwriting and tie-ups with major banks or NBFC as key upside risks.

One97 Communications Founder and CEO Vijay Shekhar Sharma said yesterday that Paytm is aiming to break even in EBITDA (Ebitda before Esop cost) by the end of September 2023.

In a letter to shareholders, while announcing its last quarter results, Sharma said amid volatile market conditions for high growth stocks globally, Paytm shares are down significantly from the IPO price.

“Amid volatile market conditions for high-growth stocks globally, our shares are down significantly from the IPO price. Rest assured, the entire Paytm team is committed to build a large, profitable company and create long-term shareholder value. Consistent with this, my stock awards will only vest to me when our market capitalization crosses the IPO level on a sustainable basis,” Founder and CEO Vijay Shekhar Sharma said Wednesday.

Paytm had offered shares to the public at Rs 2,150 each at a market valuation of Rs 1.39 lakh crore. The stock has been on a downward trend since its IPO in November 2021 and has fallen over 70% as the market capitalization has fallen to Rs 41,000 crore.

BSE had recently sought clarification from Paytm on the massive drop in its stock price. Shares of the company fell on declining investor interest in loss-making growth companies in light of rising interest rates, confusion over Paytm’s path to profitability and recent moves. regulations against the company.

Paytm said its lending activity reached 65 lakh in loan disbursements during the quarter, totaling a total loan value of Rs 3,553 crore, up 417% year-on-year. The total value of loans disbursed in March was around Rs 1,460 crore, compared to Rs 1,170 crore in February and Rs 920 crore in January.

Offline payment activity, Paytm said, accelerated with 90 lakh devices rolled out during the quarter. The total number of devices deployed has risen to 29 lakhs. This is up from 20 lakh devices in the previous quarter.

Morgan Stanley noted that the RBI has banned the onboarding of new customers to Paytm Payments Bank and has not yet clarified potential changes to digital payment fees. He sees a slight change as the latter could go up.

“For US payments and fintech businesses, we apply adjusted F26e EV / sales multiples of 5x (base), 4x (bearish) and 6.5x (bullish) and derive FY25 EV, which we discount to FY23 at 13.4 percent WACC. We then add net cash from March 2024e,” he noted.

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Garland K. Long