Axis Capital reiterates ‘BUY’ rating for Paytm with a target price of ₹ 1,000; gives positive stance on co’s healthy business performance
October 16, 2022: Analysts say that Paytm’s better-than-expected traction in loan disbursement can lead to higher share of financial services in overall revenue, leading to a higher contribution margin.
Paytm, India’s largest digital payments and financial services company, continues to register robust growth in its diverse business.
The company this week published its operating metrics for the quarter ended September 2022, where it has witnessed a huge scale-up in its payments and credit business.
Showing confidence in Paytm’s strong performance, Axis Capital has reiterated its ‘BUY’ rating on Paytm with a Target Price of ₹1,000, with an upside of 38%.
The report said, “The company’s healthy business performance across operating metrics supports our positive stance on Paytm, where it has posted a strong financial services revenue to drive margin in Q2FY23.”
Paytm continues to report strong traction in its financial services vertical driven by improved loan disbursal run-rate and higher average ticket size.
The steady momentum in monthly active users in payments vertical drives GMV up. In Q2FY23, Paytm originated Rs 73.1 billion of loans (5.8x YoY, an increase of 32% QoQ) in value terms and 9.2 million loans (3.2x YoY, a surge of 8.4% QoQ) in volume terms.
It further added, “The company continues to add devices like POS and Soundbox at a healthy pace of 1 million per quarter, with overall devices at 4.8 million. Strong
traction in loan disbursement and faster growth in financial services revenue bode well for improvement in contribution margin.”
In September ’22, value of loans disbursed was at Rs 28 billion, up 15% MoM, and 3.2 million loans (+7.4% MoM) in volume terms.
With a consistent growth in total merchant payments volume, Gross Merchandise Value (GMV) grew 63% YoY and 7.6% QoQ in Q2FY23 to Rs 3.2 trillion. Paytm’s Average Monthly Transacting Users (MTU) grew 39% YoY and 6.6% QoQ to 79.7 million (81.5 million in September ’22).
“The value of loans disbursed was 10% above our estimate. In volume terms, it was a surge of 3.2x YoY and 8.4% QoQ at 9.2 million loans.
Average ticket size continues to trend up at Rs 7,960 (+80% YoY, +21% QoQ). Improvement in average ticket size indicates higher credit demand and higher risk appetite among lenders as asset quality trends remain comfortable,” said Axis Capital.
The report added, “Higher adoption of devices should support higher GMV, increase payments revenue from merchants and provide higher cross-sell opportunities for merchant loans.”
All of this makes the analyst believe that the company could report strong revenue. “Better-than-expected traction in loan disbursement can lead to higher share of financial services in overall revenue versus our estimates, leading to a higher contribution margin, in which our Q2FY23 estimate is 44.9%, a surge of 170 basis points QoQ,” said the report.
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