Paytm share price rises 7% in 6 months, may rally this much more; JP Morgan bullish, should you buy?

Paytm share price rose 3 per cent on Monday after foreign brokerage firm JP Morgan reiterated a positive stance on the stock last week. Analysts maintained a price target of Rs 1,000 on the scrip, suggesting an over 50 per cent potential rally going forward. The brokerage firm believes that Paytm is undergoing a model shift from chasing ‘growth at any loss’ to ‘profitability at scale’ now. “Moderation in indirect expenses Q2 onwards should hence be a catalyst,” it said. Paytm shares have tanked over 50 per cent so far this year, but have risen 7 per cent in the last 6 months. Paytm share price jumped over 3 per cent to hit an intraday high of Rs 660 on NSE. JPMorgan’s target price on the counter suggests a 51 per cent potential upside over Monday’s intraday high level. 

According to the JP Morgan report, Paytm’s Q2 earnings will be key to see evidence of loss reduction and increasing confidence in 23 September breakeven. “The increase in indirect expenses could moderate, driving significant operating jaws in adjusted EBITDA losses. Paytm has been reinvesting gains in contribution margin back into marketing and its device business buildout which has limited its EBITDA margin improvement,” it said, adding that this will be key to Paytm achieving its guidance for a given target.

Paytm share price set to give sharp upside movement

Paytm shares price has tumbled nearly 70 per cent from its upper price band of Rs 2150. The shares have been nosediving ever since it was listed on Indian bourses in November last year. However, after hitting the lifetime low of Rs 510 on NSE, the stock has bounced back giving a little hope to positional investors. According to the JP Morgan report, Paytm share price is set to give some sharp upside movement and it may regain four-digit price by end of March 2023. “We estimate incremental CM of 60 per cent – well above 43 per cent in Q1F23- suggesting scope for further improvement. Q2 earnings print on loss reduction rate will be a key catalyst,” it said.

Payments business now decisively in positive margin territory

According to the analysts, Paytm’s financial services business scale-up has remained a key value driver and that loss rates on syndicated loans are running below normal. It felt payments business is now decisively in positive margin territory. “Further tailwinds to Payment business margins exist from potential UPI P2M monetisation either from MDR introduction (unlikely) or from increased subsidies from the government (currently at $200 million for the system) to support network investments. UPI’s P2M becoming monetisable via government rebate is a major mid-term positive for payment economics,” the brokerage said.

Strong revenue growth likely across all business segments

Meanwhile, analysts added that competitive intensity could moderate in the payments/digital lending space from fintechs, given the tightening of funding and regulatory hold in the sector.  “In our view, this could benefit Paytm as it is well funded to drive expansion and has also highlighted that it is compliant with the digital lending regulatory guidelines, which we think can clear the regulatory overhang on the FS part of its business model,” they said. The brokerage expects, Paytm to see strong revenue growth across all its business segments, thanks to device monetisation in payments, financial services cross-selling, ticketing recovery and rising ad monetisation. 

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Several other global brokerages also remain bullish on the fintech stock. Goldman Sachs has maintained a target price of Rs 1,100 on Paytm shares which implies a 66 per cent upside. Meanwhile, Citi also maintains a positive outlook on Paytm shares. It has set a target price of Rs 998 for the stock, meaning a 50% upside from Monday’s intraday high of Rs 660 per share.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)