Paytm shares jump 12% in two sessions; Goldman Sachs sees the stock at Rs 1,150

Shares of One 97 Communications, Paytm's parent, extended their gains for the second straight session on Tuesday. The stock jumped 20 per cent to hit an intraday high of Rs 669.60 (upper price band) after the company's quarterly results beat Street expectations. The scrip eventually settled 5.60 per cent higher at Rs 589.25 over its previous close of Rs 558. Considering closing levels, Paytm has surged 12.25 per cent in two straight sessions.

Goldman Sachs has upped its target price for Paytm to Rs 1,150 from Rs 1,120 on the back of significantly stronger Q3 FY23 (December 2022) quarter results. It raised FY24 adjusted EBITDA estimate by 30 per cent and FY25 EBITDA estimate by 14 per cent.

"Paytm reported a 42 per cent YoY (year-on-year) revenue growth in Q3 FY23, marginally below our expectations (45 per cent YoY) and a deceleration vs Q2 FY23 revenue growth of 76 per cent YoY; this was driven primarily by slower-than-expected growth in payments (weak non-UPI GMV growth) and weaker cloud revenues, which Paytm partially offset by stronger commerce (ticketing) revenues," Goldman stated.

The global investment research firm expected that Paytm's revenue growth could accelerate to 47 per cent YoY in Q4 FY23 on account of around Rs 130 crore in UPI incentives.

It noted that Paytm posted its first quarterly positive cash EBITDA of Rs 30 crore in Q3 FY23, three quarters ahead of company guidance (of September 2023).

Paytm's lending business, Goldman said, continued to see strong momentum, with revenue growth of 256 per cent YoY in Q3 (vs 293 per cent in Q2), driven by 357 per cent YoY growth in disbursals (by value).

On the status of RBI restriction on Paytm Payments Bank, Paytm mentioned that the payments bank is taking necessary steps to comply with the central bank's suggested remediating measures. "Paytm's MTU (monthly transacting users) additions have remained strong in the last one year, suggesting limited operational impact from the restriction to onboard new customers at PPBL," it added.

Goldman Sach reiterated its 'Buy' rating and suggested that "Paytm's current share price continues to offer a compelling entry point into India's largest and one of the most profitable fintech platforms."

BofA Securities said Paytm's December quarter results beat Street expectations. "This was mainly on the back of rising mix of high margin lending revenue, improving merchant subscription, reducing payment processing & promotional charges," it stated.

The brokerage has maintained a 'Neutral' call on the counter with a target price of Rs 730.

"As of Q3 end, Paytm has Rs 8,957 crore ($1.1 billion) outstanding cash balance. Till February 3, 2023, Paytm has bought back 146.7 crore shares and utilised Rs 796 crore cash, at an average price of Rs 543 per share," BofA stated.

Technical view

"Paytm has made its first attempt to test the 200-SMA post the strong surge but failed to surpass the same convincingly. It is hovering near the sloping trend line of the recent two swing highs and until it surpasses the Rs 650-660 zone, timidity is likely to continue in the counter," said Osho Krishan, Senior Analyst - Technical and Derivative Research at Angel One.

Krishan said Rs 570-550 may provide a cushion to any blip, followed by the strong support of Rs 520. "On the higher end, Rs 650-660 is likely to act as immediate resistance, followed by the immediate swing high of Rs 720 levels in a comparable period," he added.

The counter's 14-day relative strength index (RSI) came at 61.93. A level below 30 is defined as oversold while a value above 70 is considered overbought. The company's stock has a negative price-to-equity (P/E) ratio of 16.34.

Meanwhile, Indian equity benchmarks extended their fall for the second straight session today, dragged by automobile and consumer stocks. The 30-share BSE Sensex pack settled 221 points or 0.37 per cent lower at 60,286; while the broader NSE Nifty index fell 43 points or 0.24 per cent to close at 17,722.

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