Motilal Oswal Securities has assigned a ‘buy’ rating and a target price of Rs 865 per share to One97 Communications Ltd., the parent company of Paytm, representing a 34 percent increase from the current market price.
Paytm’s gross merchandise value (GMV) has increased at a 55 percent compound annual growth rate (CAGR) from FY19 to FY23, despite a minor decline caused by COV-19. After COVID, the GMV has increased considerably, with an 81 percent CAGR from FY21 to FY23. Due to Paytm’s increasing utilisation, Motilal Oswal anticipates that GMV will continue to grow at a robust CAGR of 27 percent between FY23 and FY25.
As of FY23, the number of monthly transaction users (MTUs) for Paytm has increased to 90 million, while the number of subscription payment devices has increased to 6.8 million. As merchant penetration remains low, it is anticipated that Paytm will continue its development trajectory, adding 1 million devices per quarter. Motilal predicted in a recent report that payment revenue will increase at a robust 21% CAGR from FY23 to FY25.
It is anticipated that Paytm’s financial business will increase the profitability of its core payment business due to its larger contribution margin. The percentage of revenue derived from financial services increased from 4% in 9MFY19 to 19% in 9MFY23.
Its lending business has experienced significant growth in loan disbursements, with the total number of loans disbursed increasing by 4.6 times year-over-year in FY23. Motilal Oswal predicted that Paytm’s loan disbursements will grow at a robust CAGR of 64 percent between FY23 and FY25.
Paytm broke even on its adjusted EBITDA in the third quarter of fiscal year 23 (Q3FY23), ahead of its projections. “It is expected that Paytm will reach EBITDA break-even by FY25, with an EBITDA margin of 3.2 percent. The revenue and contribution profit of Paytm are estimated to grow at a CAGR of 26 percent and 32 percent over FY23-28,” the brokerage firm said.