ICICI Securities recommends 'Buy' rating for Paytm

New Delhi [India], November 16 : Fintech solutions provider One 97 Communications, which operates the popular payment platform Paytm continues to dominate the payments landscape in India.
Buoyant on the company's strong performances in the coming quarters and EBITDA breakeven guidance by September 2023, equity research firm ICICI Securities has reiterated a 'Buy' rating with a share target price of Rs 1,285. Paytm's shares are currently trading at Rs 610.
Recently, other top brokerage firms such as JP Morgan, Morgan Stanley, Goldman Sachs, Dolat Analysis and Research Themes, and CITI extended their confidence in Paytm's strong performance with 'Buy' ratings.
Even after lock-in expiry, in the case of Paytm, its pre-IPO investors like Warren Buffet, SoftBank, Elevation Capital, and Alibaba are long-term investors.
SoftBank's Masayoshi Son, as per media articles, won't hasten his exit from its investments like Paytm, PB Fintech, and Delhivery.
Notably, Paytm recently posted the Q2FY23 results, where it indicated healthy traction across all its businesses.
"One 97 Communications (Paytm) continues to improve its revenue and margin profile, evident in the narrowing of consolidated loss at Rs 5.7 bn in Q2FY23 (vs loss of Rs 6.5 bn in Q1FY23). Its performance was characterized by sustained lower processing charges and net payment margin improving a tad; sharp acceleration in the lending business with disbursements of Rs 73 billion; enhanced contribution/ adjusted-EBITDA (before ESOP cost) margin with higher financial services/cloud revenue growth further aided by lower indirect costs; sustained growth in monthly transacting users (MTUs), deployment of offline devices and continued build-up of the gross merchandise value (GMV)," ICICI Securities said in a report on November 9.
The brokerage report further said it expects the company's EBITDA improvement trajectory to continue and there is the visibility of it getting into positive territory by financial year FY26.
Coming back to Paytm's earnings, Paytm had posted a 76 per cent year-on-year growth in revenue to Rs 1,914 crore. The company's losses reduced by 11 per cent on a sequential basis.
It maintained sustained growth in revenue led to expansion in contribution profit, leading to a 20 per cent year-on-year increase in contribution margin. The company's contribution profit for Q2FY23 stood at Rs 843 crore, marking an increase of 224 per cent year-on-year and 16 per cent quarter-on-quarter, resulting in an expansion of contribution margins to 44 per cent, compared to 24 per cent in Q2FY22.
In addition to improvement in contribution profit across businesses, other factors that helped boost Paytm's contribution margin increased mix of high-margin businesses such as loan distribution and indirect costs at Rs 1,010 crore in the quarter were flat vs the previous quarter's Rs 1,001 crore despite the investments to drive further growth.
The company today also announced its operating metrics for October, where it has disbursed 3.4 million loans, registering a yearly growth of 161 per cent.
The value of total loans disbursed in October grew to Rs 3,056 crore. Paytm's leadership in offline payments strengthened further with its total merchant subscription devices deployed increasing to 5.1 million.
With its subscription-as-a-service model, the strong adoption of devices drives higher payment volumes, and subscription revenues, while increasing the funnel for merchant loan distribution.