One97 Communications Ltd. share price target

Paytm has successfully navigated through the regulatory challenges while retaining most of its merchant base. The company’s merchant base grew 9% YoY to 43m in 3QFY25, while the number of merchants with devices rose 10% YoY to 11.7m.

Paytm posted lower EBITDA (before ESOP) loss at Rs0.4bn vs (Emkay: Rs0.7bn), mainly due to better lending revenue (even adjusted for the higher DLG cost) and continued cost optimization measures.

One 97 Comm. (PAYTM) reported a net loss of INR2.1b, lower than our estimated loss of INR3.6b due to better revenues and lower indirect and ESOP cost.

We upgrade Paytm to BUY from Add with revised DCF-based TP of Rs1,050 (earlier Rs750), implying FY27E EV/Op Rev at 4.5x and P/BV at 4.2x. Recent NPCI approval (Oct-24) released a major regulatory overhang, which should help it rebuild the MTU base in the next 12-18M and thus cross-sell retail financial products like loans (for eg: HL), insurance, and wealth products, thereby improving revenue per user.

As part of its stated strategy to focus on its core payment/financial services business, Paytm has agreed to sell its high-margin movies and event ticketing business (subset of marketing services) to Zomato (foodtech) for an all-cash consideration of Rs20.5bn.

Paytm has agreed to sell its entertainment ticketing business to Zomato for INR20.48b in cash, which will allow Paytm to strengthen its focus on its core Payments and Financial Services Distribution business.

As part of its strategy of focusing on the dwindling core business—viz. Payments and Financial Services— post RBI action, Paytm is exploring a deal with Zomato (foodtech) to transfer its high-margin (take rate: 5-8%) movies and event ticketing business (a subset of Marketing Services); this is likely to hit Paytm’s customer traffic.

We initiate coverage on One97 Communications (OCL-Paytm) with REDUCE and
a ~13% downside. Following the recent regulatory salvo, the stock has
corrected ~55% (~80% from its post-IPO peak in Nov-21), echoing the
expected business/revenue dislocation in the Payments/Financial Services
verticals; this was aggravated by high KMP attrition

16 analysts provide a consensus recommendation of Buy for PayTM with a share price target of Rs. 1002, indicating that analysts remain optimistic about the stock despite recent regulatory changes.

One97 Communications’ (Paytm) Q1FY24 results yielded three key trends: (1) increase in margins on payments; (2) lower take rates in financial services, but continued improvement in asset quality; and (3) increase in fixed costs. The overarching strategy of growth in payments and credit distribution (without FLDG) remains intact and will only likely be boosted by partner addition and improving penetration within the ecosystem.