In a noteworthy development, global brokerage firm UBS Securities has forecasted that Paytm, the prominent payments aggregator, is on track to achieve EBITDA breakeven by the financial year 2024-2025 (FY25). The projection includes expectations of an EBITDA margin by FY28, setting an optimistic trajectory for the company.
Shares of Paytm witnessed a notable surge of up to 4%, reaching INR 746.4 during intraday trading on the Bombay Stock Exchange (BSE) on Tuesday, January 16.
UBS has officially initiated coverage on One97 Communications Ltd (Paytm), extending a ‘Buy’ recommendation with a target price of INR 900. This target implies a potential upside of 26% from the closing levels on Monday, January 15.
The brokerage firm underscores its belief that sustained monetization efforts and the achievement of EBITDA break-even will serve as key drivers for a positive re-rating of Paytm’s stock.
“Paytm’s omni-channel payment business has earned it a 25% industry GMV share. Meanwhile, its large top-of-the-funnel payment business has accelerated monetization across merchant devices and loans,” stated UBS in a comprehensive report.
UBS recognizes Paytm as a leader in the payment industry, emphasizing robust merchant and customer engagement. The firm’s EBITDA estimates for FY2026-2028 surpass consensus estimates by 8% to 14%.
In addition, UBS acknowledges the significant growth in Paytm’s loan origination, which experienced a sevenfold increase during FY22-FY24. The expansion in lending partners, from four in FY22 to nine in FY24, reflects the company’s strategic approach.
UBS expresses positive sentiments towards Paytm’s merchant loan (ML) business, citing early delinquency indications from proprietary merchant data and daily settlements. Factoring this in, the firm predicts a 21% Compound Annual Growth Rate (CAGR) for the company’s overall revenue in FY24-28.
Furthermore, UBS highlights Paytm’s discounted valuations compared to global and Indian peers, considering this aspect as a positive factor for the company.
This latest forecast from UBS follows Paytm’s inclusion in BofA Securities’ list of top 10 short-term recommendations for the Asia Pacific region for Q1 2024.
Despite facing challenges, including the scaling down of its postpaid loan vertical and recent employee layoffs, Paytm reported a 49% YoY decline in consolidated net loss to INR 291.7 Cr in Q2 FY23-24. The improved financials and strategic moves have contributed to the stock’s resilience and positive market performance.
