Paytm shares at Rs 1,000? UBS doubles target price, but maintains neutral rating

Foreign brokerage UBS doubled its target price on One 97 Communications Ltd (Paytm) to Rs 1,000 from Rs 490 earlier, but maintained its 'neutral' stance on the stock, as it believes most positives are already priced in.

With most regulatory issues resolved, business performance improvement will be the key for Paytm, UBS said adding that regaining customers - monthly transactional users (MTUs) are down 30 per cent from pre-RBI action levels - and digital payment market share (down to 18.5 per cent from 24 per cent pre-RBI action) will be the most important for Paytm, along with loan origination business ramp-up.

"There are encouraging signs, as its net payment margin NPM is running ahead of our estimates and its digital payment market share likely bottomed out, on regulatory approvaland higher UPI spending is also positive. We raise our revenue and EPS estimates to bake in higher NPM and increased MTUs," UBS said.

That said, the stock has run up 70 per cent in the past 3 months in anticipation of key metric improvement and is trading at 5.8 times EV/1-year-forward sales against 3.4 times pre-RBI action level.

"We think that reflects our base-case fundamental improvement, leaving balanced risk- reward. We raise our price target to Rs 1,000 but maintain our Neutral rating, with DCF-based valuation that implies 5.5 times EV/FY26E sales," UBS said.

Adjusted Ebitda break-even is likely as of Q4FY25, it said. UBS believes adjusted Ebitda to turn positive in Q4 and overall Ebitda to reach Rs 990 crore in FY26 aided by increased revenue and declining costs, which it believes are sticky in nature.

"We foresee overall expenses in FY26 (ex-payment processing charges) to remain the same as in FY24, largely as a result of declining employee cost. That implies an adjusted Ebitda margin 10 per cent in FY26 vs 6 per cent in FY24," it said.

Paytm shares settled at Rs 920.70 on Wednesday, up 3.85 per cent. The stock is up 26 per cent in the past one month and 169 per cent in the past six months.