 "Paytm")
Shares of One 97 Communications (Paytm) rallied 6.2 per cent to finish the day at Rs 772 per share on Thursday, following an upgrade by BofA Securities citing its dominant position in the payment industry. The close was the highest for the firm since August 23, 2022.
The brokerage now has a ‘buy’ rating on the stock with a price target of Rs 885, implying a 15 per cent upside from current levels.
“We find Paytm well positioned to continue to dominate the SME merchant landscape where the subscription model via soundbox is improving merchant stickiness. We expect Paytm's momentum in buy-now-pay-later (BNPL)/merchant lending to continue, albeit at a slower pace, leading to 34 per cent revenue CAGR (compound annual growth rate) from FY23-26 (financial year 2023 to 2026),” said a note by BofA.
The brokerage believes reduced competition in the payments space will also help the fintech firm.
“In the last six months, competitive intensity has fallen further with most fintechs struggling due to funding winter, stricter RBI (Reserve Bank of India) norms and declining discounts. Indeed, we see limited competition for Paytm in its soundbox business as well as in the BNPL/merchant lending space.”
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Paytm has a cash balance of nearly Rs 8,270 crore, over 15 per cent of its market capitalisation.
BofA also sees Paytm narrowing its post losses per share, from Rs 28 in FY23 to Rs 19 in FY24 and Rs 6.2 in FY25.
Paytm generates bulk of its revenues from the commission it gets from its lending partners for acting as a “sales and collection” agent. The company has three lending products: BNPL, personal loans and merchant loans. It has tied up with five NBFCs (non-banking financial companies), which carry the loans on their balance sheets. Paytm does not underwrite any loans on its balance sheet.
A recent note by CLSA said that the total small-ticket personal loan assets under management in India was Rs 30,000 crore as of September 2022, citing a credit bureau report.
Shares of the company have now risen 75 per cent from their all-time lows but are still down 64 per cent over its issue price of Rs 2,150.
