Emkay upgrades Paytm to add, raises target price to Rs 750

This target price signals around a 12% increase from the stock’s closing price on Monday.

“We upgrade Paytm to ADD, while elevating our DCF-based TP to Rs750/share (earlier Rs375), implying 3.6x/3x FY26E/27E EV/Operating revenue, as the easing regulatory stance should pave the way for approvals from NPCI/RBI to onboard new users/online merchants soon and, thus, drive business turnaround. This, coupled with strong cost optimization measures, should put Paytm on an early path to profitability,” said Emkay Global in its report.

Paytm has largely protected its merchant base (settled at 41 mn) and transitioned its user base (78mn, down in 1QFY25 from 100mn) to new partner banks which should now pave the way for the long-pending NPCI approval to onboard new users. The recent FIPB approval should also make provision for securing the long-pending Payment Aggregator license from the RBI and thus protect its online merchant business.

The company has also embarked on a massive cost optimization drive with heavy lifting to be done in FY25E via voluntary/involuntary staff attrition, while limiting marketing spends with the bulk of the payment business now shifting to UPI.

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This, along with improving traction in its broking business and interest income on sale proceeds from the entertainment business, should help it turn Op EBITDA (ex-ESOP and UPI incentives) positive by 4QFY25E.

Better revenue growth from the reinvigorated payment/lending business, continued cost optimization (Opex ex-depreciation and ESOP/revenue to fall to 95-89% in FY26-28E from >100%), and reducing ESOP cost should further help it turn PAT positive by FY27E vs FY28E earlier.

The domestic brokerage firm also stated that Paytm’s further re-rating will be contingent on faster recouping of lost consumer MTU, strong bounce-back in the lending business as partner/attrition issues ease, and no further regulatory disruption.

Meanwhile the shares of Paytm were trading 1.8% higher at Rs 663.20.

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