Paytm share price rallies over 3% as UBS initiates coverage with a ‘Buy’ call; sees EBITDA breakeven in FY25

livemint.com:

₹742.20 apiece on the BSE. UBS expects One 97 Communications, the parent company of fintech giant Paytm, breaking even on EBITDA in FY25 and reaching a 20% EBITDA margin by FY28. It views this as a key re-rating trigger, as seen at other new-age companies such as Zomato, where investors value profitable growth more than pure growth.

The foreign brokerage initiated its coverage on Paytm with a ‘Buy’ rating and a target price of ₹900 per share, implying an upside of 25.8% from Monday’s closing price. Also Read: Jio Financial Services share price tanks over 6% after Q3 results Paytm's omni-channel payment business has earned it a 25% industry Gross Merchandise Value (GMV) share. Its large top-of-the-funnel payment business has accelerated monetisation across merchant devices and loans.

“We think regulatory issues have passed for payments and expect Paytm to benefit from a 24% CAGR in the payment player fee pool in FY23- 28E. Beyond payments, Paytm’s loan origination has grown 7x in FY22-24E, with lending partners rising to nine in FY24 from four in FY22," said UBS. UBS also likes Paytm’s merchant loan (ML) business, as its proprietary merchant data and daily settlement indicate early delinquency.

Hence, it forecasts an overall revenue CAGR (Compounded Annual Growth Rate) of 21% for the company in FY24-28. (Exciting news! Mint is now on WhatsApp Channels Subscribe today by clicking the link and stay updated with the latest financial insights! Click here!) Further, it expects Paytm EBITDA margin to gradually reach 20% by FY28. “Paytm’s profitability has progressed, with the contribution margin improving to ~55% of revenue in FY24 and EBITDA (ex-ESOP costs) turning positive.