Emkay Global Financial Services has upgraded Paytm’s stock rating from ‘Reduce’ to ‘Add’, doubling the target price to Rs 750 from Rs 375. This decision comes amid easing regulatory pressures and effective cost optimization strategies by the company. Paytm’s share price has gained momentum recently, rising over 19% in one month and more than 61% in the past three months.
The stock climbed as much as 3.30% to Rs 673.05 apiece on the BSE after the ratings upgrade. Anand Dama, Senior Research Analyst at Emkay Global, said, “Easing regulatory stance shall pave the way for approvals from the NPCI and RBI to onboard new users and online merchants, which should drive the business turnaround. This, coupled with its cost optimization measures, should put Paytm on the early path to profitability.”
Paytm has retained approximately 41 million merchants and successfully transitioned its user base to new partner banks.
The company’s merchant lending business is poised to be a key growth driver in the near-to-medium term.
Paytm’s path to profitability
Cost optimization has been central to Paytm’s strategy, with significant cost-cutting initiatives through voluntary and involuntary staff attrition and limited marketing expenses.
Operating expenses are expected to decline by 15% year-on-year in FY25. Along with improving transactions in its broking business and interest income from sales proceeds, this should help the company achieve positive Operating EBITDA by Q4 FY25. In Q1 FY25, Paytm reported an operating revenue of Rs 1,502 crore and a Gross Merchandise Value of Rs 4.3 lakh crore, demonstrating a 27% year-on-year increase.
Paytm’s share price is currently trading at a premium compared to profitable global paytech peers like PayPal or Paysafe, given India’s growth premium and its differentiated loan distribution business. However, it remains at a discount to profitable BNPL players like Affirm. As of 11:25 AM on September 24, 2024, Paytm shares were trading 1.50% higher at Rs 661.25 apiece.
