Goldman Sachs says Paytm Q4 margin print may lift Street confidence, sees stock doubling in bull case scenario

Foreign brokerage Goldman Sachs said One 97 Communications (Paytm) may report robust March quarter results, with revenue growth of 49 per cent YoY (41 epr cent on a like-for-like basis). This would be  the second consecutive quarter of positive margin, on reported basis, it said.

Goldman Sachs is expecting 10 per cent adjusted Ebitda margin for Paytm in the Mach quarter or  3 per cent, margin excluding Rs 170 crore of estimated UPI incentives. This is against a minus 24 per cent margin in the year-ago quarter.

Paytm reported gross merchant value (GMV) of Rs 3.6 lakh crore, up 40 per cent, which Goldman Sachs says could be 24 per cent share of India’s digital payments. It said Paytm’s March quarter GMV growth of 5 per cent sequentially represents a modest deceleration against a 9 per cent QoQ growth in the December quarter, which is likely a function of adverse seasonality.

It estimates share of UPI in Paytm’s GMV to have further increased to 63 per cent in Q4FY23 against 61 per cent in Q3 and and 58 per cent in the year-ago quaretr.

"While UPI does not have an MDR (merchant discount rate), we estimate Rs 170 crore to be Paytm’s share of UPI incentives for FY23E to be recognized in the company’s Q4FY23 revenues, or 7 per cent of Paytm total revenues. Paytm’s market share in overall UPI and P2M UPI was broadly flat qoq in the Mar quarter," it said.

The brokerage estimates Paytm’s non-UPI GMV growth to be 23 per cent YoY in Q4FY23 against 5 per cent YoY growth in December quarter, higher than the underlying industry growth of 15 per cent.

It, however, noted that the YoY acceleration in March quarter growth would be on account of Covid-impacted base of the March 2022 quarter and that on a sequential basis it expects Paytm’s non-UPI GMV to be flat.

In the case of loan disbursals, Paytm saw 26 per cent QoQ growth (253 per centYoY) in the March quarter. Paytm is currently annualising $6.3 billion in disbursals (across postpaid, personal loans and merchant loans) against $1.8 billion in March 2022.

"Average ticket size of loans saw c.11 per cent QoQ growth in Q4 to Rs 10,500, indicating increasing ticket size of postpaid by consumers, and a mix shift towards higher commission personal and merchant loans. Paytm’s loan disbursals have continued to surprise positively, and we have further raised our FY24E-26E disbursals estimate for Paytm by up to 2 per cent," the brokearge said.

Paytm stock trigger 

Goldman Sachs said any near term resolution of the customer onboarding ban on Paytm Payment Bank (PPBL) could be another meaningful catalyst for Paytm.

Goldman Sachs said its refreshed scenario analysis suggests Paytm’s current share price is already pricing in multiple headwinds, with the stock trading close to its bear-case implied value. It sees a positive risk-reward, with 117 per cent potential upside in a bull case against 12 per cent downside in a bear case.

"Lending continues to surprise, positively impacting profitability We believe investor focus during the quarter will be on rate of improvement in Paytm’s profitability; sustainability of credit quality metrics for its lending portfolio given a tough macro environment; update on regulatory issues, particularly ban on PPBL," the foreign brokerage said.

Goldman Sachs said investor pushbacks remain around potential supply of shares (53 per cent of Paytm’s outstanding share capital concentrated among 3 shareholders), sustainability of Paytm’s margins, and lack or clarity on a few regulatory issues.

"We believe Paytm’s margin print in Q4 will help further increase the Street’s confidence around the increasing traction of Paytm’s business model and the company’s ability to be profitable on a sustained basis," it said.

 

 

 

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