Shares of One 97 Communications (Paytm) have rallied over 13 percent in just 2 sessions after the company announced its March quarter results (Q4FY22). However, despite the recent rise in stock after a long correction, brokerages have widely different views on the stock.
While Macquarie has a sell call with a target price of ₹450, indicating an over 25 percent downside; brokerages Goldman Sachs and ICICI Securities have maintained 'buy' ratings on the stocks with target prices of ₹1,070 and ₹1,285 respectively.
Goldman Sachs sees over 70 percent upside in the stock (TP: ₹1,070) while ICICI Securities expects the stock to more than double in the next 12 months. The latter sees an upside of 105 percent in the stock (TP: ₹1,285).
The wide difference in target prices and rating amidst brokerages is because they differ on breakeven expectations post the March quarter earnings.
In the March quarter, the firm's net loss widened to ₹761.4 crore versus ₹441.8 crore in the same quarter last year. However, sequentially, losses were marginally lower than ₹778 crore posted in the December quarter. Meanwhile, revenue from operations surged 89 percent YoY to ₹1,540.9 crore against ₹815.3 crore it recorded in the same quarter year ago.
According to Goldman Sachs, Paytm’s Q4FY22 results exhibited another quarter of strong and improving monetization of the payments vertical, while growth momentum for financial services and cloud businesses remain robust.
It added that Paytm's cash burn has also been improving, and the company reiterated its guidance of adjusted Ebitda breakeven by September 2023, which the brokerage sees as a key catalyst for the stock.
Similarly, ICICI Securities noted that the March quarter was characterised by improved penetration for lending products and an uptick in lending business led by the company’s ‘Buy Now Pay Later’ (BNPL) product.
It added, "We remain conservative and expect the company to be Ebitda-positive by FY25."
"Paytm saw enhanced contribution/adjusted-Ebitda (before ESOP) margins due to increased net payment rate, the rising contribution of financial services revenue and contained marketing expenses, adding that there was also sustained momentum in monthly transacting user (MTU) growth and deployment of offline devices," ICICI Securities explained.
However, Macquarie still sees a downside in the stock in the future as it believes profitability is still an uphill battle and that Ebitda losses may take 12 quarters to break even. The brokerage has been reducing the target price of the stock since it first initiated coverage in November 2021, when the stock was listed.
Its initial target was ₹1,200 over its issue price of ₹2,150 which was then cut to ₹900 in January, ₹700 in February, and finally ₹450 in March. The financial services business is still sub-scale, however, core business model uncertainties remain, the foreign brokerage noted.
Post the earnings, the management said that it is confident of achieving operating profitability by Q2FY24 on the back of improving contribution margins and decreasing indirect expenses as a percentage of operating revenues.
Meanwhile, Goldman Sachs also raises its topline estimates by 3-4 percent and expects growth momentum to sustain. It forecasts 90 percent YoY revenue growth for Paytm in the June quarter, with 38 percent FY22-25E revenue CAGR.
ICICI Securities also estimates financial services revenue growing at a CAGR of 58 percent over FY22-FY26E, comprising 19 percent of operating revenue.
