Top brokerages raise targets for Paytm; recommend 'Buy' as firm achieves operating profitability

Noida (Uttar Pradesh) [India], February 6 : India's leading digital and mobile payments Paytm has received positive commentary from the global brokerages' analysts after the fintech company achieved operating profitability with Ebitda before employee stock ownership plan (ESOP) cost at Rs 31 crore, ahead of its guided timeline of September 2023.
Global firms such as Goldman Sachs, Bank of America, CLSA and Citi have raised their price target on Paytm by up to 119 per cent.
Citi, CLSA, and Goldman Sachs have recommended to buy the share post-Q3FY23 earnings, while Bank of America (BofA) maintained its 'neutral' rating. Goldman believes that Paytm's current share price continues to offer a compelling entry point into India's largest fintech platforms. Analysts at the firm also said that they expect profits to sustain, with continued strong traction in disbursals, operating leverage, and unified payments interface (UPI) reimbursement in March 2023.
Another top firm CLSA said that Paytm has over delivered as the company's revenue was largely in line and expects that the positive earnings before interest, taxes, depreciation, and amortisation (Ebitda) journey of Paytm is likely to be sustained.
Paytm's strong performance was highlighted by global brokerage firm Citi, which said that Paytm delivered adjusted Ebitda before ESOPS three quarters ahead of guidance on in-line revenues, driven by resilient net payment margins, sharply lower advertising and promotional (A and P) spends and overall fixed costs controls. It added that Paytm continues to leverage its payments platform to drive lending distribution, with significant headroom for growth ahead.
Most analysts also said that an important part is that Paytm's future growth might not impact its balance sheet. Bank of America analysts said that they see room for Paytm to scale up aggressively without taking any balance sheet risks. In its view, the lending business provides an upside optionality to fintech firm, giving Paytm room to scale up subject to execution.
This was also highlighted in Dolat Capital's note which said that Paytm's strong outperformance and improvement in operating performance has reaffirmed its belief that the fintech firm can not only generate strong top line growth, but also achieve robust profitability through operational efficiency. It believes Paytm can sustain/accelerate its current growth momentum.