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From Underperform To Outperform, Paytm Gets Macquarie's Upgrade

Macquarie has raised its target price on the stock to about 80 per cent at Rs 800, raising FY23–26E revenue estimates to 33–51 per cent

From Underperform To Outperform, Paytm Gets Macquarie's Upgrade

Outlook Start-Up Desk

POSTED ON February 08, 2023 12:16 PM

Macquarie, a global financial research company has given a double upgrade on One97 Communication, which operates under Paytm. The development has come after the fintech reported operating profitability in the December quarter.

In the report, Macquarie has upgraded Paytm to 'outperform' from 'underperform', and has raised the target price (TP) to Rs 800 from Rs 450, meaning a 36 per cent upside from the current levels.

In continuation of the events, the share prices of One97 Communication reportedly surged over 5 per cent in early trade on Wednesday.

"Paytm has positively surprised on the distribution of financial services revenue by a wide margin and has also managed to control overall expenses and charges," observed the Macquarie report.
"At the time of listing, profit and free cash flow were not even a part of management’s discussion. However, we see a very visible change in the approach of management to deliver profit, evidenced, we believe, by the core EBIDTA profitability that was reported
recently," it added.

Structural Challenges

Flagging the risks in business, Macquarie highlighted that many BNPL (buy now pay later) models have failed across the world, including in India. 

The report further added that although Paytm does not carry any balance sheet risk on the loans originated, it carries significant business and reputational risk. A few months of bad performance could result in lenders withdrawing their credit lines, significantly affecting Paytm’s ability to grow.

A few weeks earlier, Paytm reported revenue growth of 41 per cent to Rs 2,062 crore in the December quarter (Q3), compared to the year-ago period, while net loss narrowed to Rs 392 crore.

Since the listing of Paytm at Rs 2,150 in mid-November 2021., the stock is down nearly 70 per cent as against Nifty being flat. 

In January, Goldman Sachs also raised its target price to Rs 1,150 from Rs 1,120. It has also raised the financial year 2024 (FY24) adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) estimate by 30 per cent and the FY25 EBITDA estimate by 14 per cent.

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