Paytm breaches Macquarie' target, analyst keeps neutral rating given recent rally

New Delhi [India], June 26 : Indian Fintech giant Paytm has hit headlines for many positives recently. The company's stock has seen a massive rally, surging beyond its 52-week high. It has also received buy calls from most analysts covering the stock. Macquarie, which had an outperform rating, has now changed it to neutral considering Paytm's impressive recent rally. Meanwhile, BofA remains confident of Paytm's business model.

The report said that Paytm continues to have strong momentum in the loan distribution business driving higher revenues and better-than-expected profitability.

The research firm expects Paytm to be accounting profitable by FY26E. Macquarie had set a target price of Rs 800, whereas Paytm's current price is at Rs 845."CYTD stock is up 59 per cent vs 3 per cent for Nifty. After such strong outperformance, we downgrade the stock to Neutral," said the Macquarie report.

In its recent note released on June 26, BofA expressed optimism on Paytm's credit business with a focus on BNPL as one of the levers for its sustained growth. The global brokerage firm reiterated its 'BUY' rating for the payments pioneer with a target price to Rs 1,020.

"We find Paytm well placed to show continued strong growth in its lending business, with room to surprise consensus in the next 4-6 quarters. Paytm's lending model is different from traditional lenders. As Paytm does not have an NBFC license, it cannot underwrite any loans on its balance sheet. Paytm follows a "take-rate+ collections" model (i.e., it connects the lender to the consumer and in the process makes a take rate). It also helps lenders in loan recovery and makes further commissions. From a demand perspective, there is substantial headroom to improve penetration, as currently c.10 mn users are availing loans," said the BofA report.

Citing the success of the company's iconic Soundbox, BofA in its last report said, "We expect its momentum in high margin lending and Soundbox business to remain good for at least next 3-4 quarters and see upside risks to consensus estimates." Highlighting Paytm's first-mover advantage, BofA said, "Paytm was the first company in India which started deploying Soundboxes at scale and in the process created a new market. As a result, Paytm has first mover advantage in this space."

The analyst report by BofA puts its confidence in the tech innovator's business model. It added, "Given the rising contribution from high margin businesses and cost control initiatives, we expect Paytm's margin improvement to happen at faster than earlier expected pace."

In its recently announced January-March quarter (Q4FY23) results, The company reported an operating profit for the second straight quarter. Paytm witnessed a 51 per cent YoY growth in revenue from operations to Rs 2,334 crore, driven by the surge in payments and loan distribution business. It reported EBITDA before ESOP cost of Rs 234 crores, including the full-year UPI incentive. In the previous quarter, Paytm achieved its milestone of operating profitability, much ahead of its September 2023 guidance.