Paytm To Turn Operationally Profitable By March, Says Goldman Sachs

Paytm may turn operationally profitable by March 2023, according to Goldman Sachs, two quarters ahead of the brokerage's earlier expectations and the company's own guidance.

The brokerage also maintained 'buy' ratings on One97 Communications Ltd., the operator of Paytm, while raising its target price to Rs 1,120 apiece from Rs 1,100 apiece, implying an upside of over 100%.

Paytm is also a part of Goldman Sachs' Asia (excluding Japan) 'Conviction List', which contains select "buy"-rated stocks based on the size and likelihood of realisation of their return potential.

The company's FY23 lending volumes are tracking around 90% higher compared to its estimates in December 2021, while maintaining healthy credit metrics, Goldman said. "This, coupled with stronger payment margins, has resulted in the company’s profitability continuing to surprise to the upside."

The presence of UPI reimbursement from the central government in the March 2023 quarter is also a key factor for its faster-than-expected operational break-even call, Goldman Sachs said.

However, founder Vijay Shekhar Sharma said in April last year that the company would break even on operating Ebitda (before ESOP costs) by the quarter ending September 2023.

"We believe Paytm’s margin print in Q3 will further increase the street’s confidence in the company’s ability to be profitable in CY23. Paytm’s monthly transacting users, loan disbursals, and devices deployed continue to surprise us positively, and we have further raised our estimates for these metrics in this note; however, the mix shift towards UPI has also been faster, resulting in cuts to our payment revenue estimates," the brokerage said in a Jan. 16 note.

Goldman said that it "believes the current share price continues to offer a compelling entry point into India's largest and one of the fastest-growing fintech platforms."

"Paytm’s valuation multiples are at a discount to its global or India peer group for a growth outlook that is better or in line with the peer group," the brokerage said. "Our refreshed analysis suggests Paytm’s current share price is already pricing in multiple headwinds, with the stock trading close to its bear-case implied value; we see risk-reward as skewed to the upside."

Despite Goldman's renewed optimism, Paytm's stock fell as much as 5.6% intraday to Rs 522.65 per share, before closing 5% lower at Rs 526.1 apiece. That's also about 75% lower than its IPO price of Rs 2,150 in November 2021.

Of the 12 analysts tracking the company, eight maintain 'buy', three suggest 'hold' and one recommends 'sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 68.2%.