Emkay Global Financial Services upgraded its rating on the parent company of fintech giant Paytm to ‘Add’ from ‘Reduce’, raising its DCF-based target price by 100% to 750 per share from 375 earlier. This upgrade came as Paytm’s share price jumped over 3% on Tuesday, reaching 673.05 apiece on the BSE. Emkay’s target price implies an upside of over 15% from Monday’s closing price.
The brokerage firm cited easing regulatory pressures and effective cost optimization strategies for its positive outlook on Paytm. “Easing regulatory stance shall pave the way for approvals from the NPCI and RBI to onboard new users and online merchants, driving a business turnaround. Coupled with cost optimization measures, this should put Paytm on the early path to profitability,” said Anand Dama, Senior Research Analyst at Emkay Global Financial Services.
Emkay Global highlights Paytm’s strong market position, retaining its merchant franchise at approximately 41 million.
Emkay upgrades Paytm rating
The firm emphasized that Paytm has successfully transitioned its user base to new partner banks, with its merchant lending business expected to become a key growth driver in the near-to-medium term.
“The cost optimization measures have been central to Paytm’s strategy. The company has embarked on significant cost-cutting through voluntary and involuntary staff attrition and limited marketing spends, as the payment business shifts primarily to UPI. We expect operating expenses to fall 15% year-on-year in FY25, along with improving traction in its broking business and interest income,” Dama added.
Better revenue growth from the reinvigorated payment and lending business, continued cost optimizations, and reducing ESOP costs should help Paytm achieve PAT positivity by FY27, compared to the earlier estimate of FY28. In Q1FY25, Paytm reported operating revenue of 1,502 crore and a Gross Merchandise Value (GMV) of 4.3 lakh crore, marking a 27% year-on-year increase. This illustrates the company’s resilience and growth potential in the evolving financial services landscape.
Overall, while Paytm shares are currently trading at a premium compared to profitable global paytech peers like PayPal or Paysafe, given India’s growth potential and differentiated loan distribution business, the further re-rating of Paytm would be contingent on recouping lost consumer MTUs, a strong rebound in the lending business, and the absence of further regulatory disruptions.
