Paytm has seen moderation in payment processing charges, marketing activities and promotional expenses over recent years. Direct expenses have moderated to 54 per cent of revenue in 9MFY23. 
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Paytm has seen moderation in payment processing charges, marketing activities and promotional expenses over recent years. Direct expenses have moderated to 54 per cent of revenue in 9MFY23. Motilal Oswal Securities has initiated coverage on One97 Communications (Paytm) will a target of Rs 865, as the brokerage expects Paytm to achieve an overall Ebitda break-even by FY25. Suggesting that Paytm’s two-pronged strategy will drive profitability, the brokerage noted that Paytm achieved a breakeven in adjusted Ebitda in the December quarter, well ahead of its guidance,. It said that a constant improvement in contribution margin and operating leverage will continue to drive its operating profitability.
The price target of Rs 865 suggests a 33.79 per cent upside over Paytm's Wednesday's closing of Rs 646.50 on BSE.
"We thus estimate Paytm to achieve Ebitda break-even by FY25 with an Ebitda margin of 3.2 per cent. We further estimate its revenue and contribution profit to grow at 26 per cent and 32 per cent CAGR over FY23-28. We thus value Paytm based on 18 times FY28E EV/Ebitda and discount the same to FY25E taking a discount rate of 15 per cent, thus valuing the stock at Rs 865, which implies 4.5 times FY25E price to sales," it said.
Motilal Oswal Securities said Paytm has reported a healthy traction in growing its gross merchandise value (GMV) at 55 per cent CAGR over FY19-23. While the growth was slightly softer due to Covid-19, the same picked-up strongly post-Covid, it said.
"GMV clocked 81 per cent CAGR over FY21-23. With increasing use cases, we expect GMV to report a healthy 27 per cent CAGR over FY23-25. Paytm also posted steady growth in MTUs to 9 crore as of FY23 while the number of subscription payment devices rose to 68 lakh. As the penetration among merchants remains low, we expect the traction to sustain with a quarterly addition of 10 lakh devices. We forecast the payment revenue to thus clock a healthy 21 per cent CAGR over FY23-25," it said.
MTU stands for monthly transacting user. Motilal Oswal said Paytm’s MTUs provide a ready customer base to cross-sell financial products to consumers; while, robust growth in subscription devices has helped improve throughput and supported growth in merchant loans. The brokerage said Paytm reported a 4.6 times jump in the value of loans disbursed to reach an annualised run-rate of Rs 50,000 crore. It estimates disbursements to report a steady 64 per cent CAGR over FY23-25, thus driving the mix of financial revenue upwards to 31 per cent. It sees contribution margin to improve to 56.8 per cent by FY25 from 30 per cent in FY22, fuelled by improvement in operating leverage and rise in financial business mix.
"Paytm has seen moderation in payment processing charges, marketing activities and promotional expenses over recent years. Hence, direct expenses have moderated to 54 per cent of revenue in 9MFY23 from 162 per cent in FY19. Similarly, indirect expenses have moderated to 54 per cent of revenue from 69 per cent in FY19. While Paytm will continue to invest in growth and merchant base expansion, the improvement in operating leverage will nevertheless aid profitability," it said.
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