Monday, May 20, 2024

Citi remains bullish on Paytm, retains ‘Buy’ rating

India’s leading mobile payments and financial services company Paytm’s strong performance in the last earnings results have brought it on the radar of global brokerage firms. After JP Morgan, brokerage firm Citi has exuded confidence in Paytm’s growth and profitability plans, citing steady improvement in payment monetization and rapid scale up of financial services.

“Paytm is showing steady improvement in payment monetization and scaling up the financial services rapidly,” said Citi in its latest analyst note for Paytm.

The brokerage firm has resumed its coverage for the Paytm stock with a ‘Buy’ Rating and a target price of Rs 915, which marks a 48% upside potential. Citi expects Paytm’s fixed operating expenditure (opex) to “meaningfully slow over FY23-24E; driving an Adjusted EBITDA breakeven by FY25E”. It also believes that Paytm’s valuations are relatively reasonable compared to its peers.

It may be noted that Citi had initiated its coverage of Paytm in April 2022 with a ‘Buy’ rating and target price of Rs 910.

Citi’s latest evaluation of Paytm is proof that global brokerage firms continue to back the company in view of strong performance in key business segments and consistent effort to reduce costs. The brokerage firm noted three positive aspects with respect to the company’s financial results for the final quarter of FY22 – strong growth in payments, rapid scale up in lending and improvement in contribution margin.

The brokerage said that Paytm’s payment gross margins are growing strongly, aided by steady improvement in overall monetization, both on the merchant and consumer side. In addition, financial services continue to scale rapidly as the company remains focused on strong upselling and expanding partnerships. Lastly, Citi also highlighted that Paytm’s contribution margin will continue to improve as operating leverage “should be more visible by FY23E”.

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