Paytm parent One 97 Communications' shares were in high demand on Monday, as the Street grew optimistic on the loss making digital payments company's path to profitability after its quarterly revenue jumped 88.5 percent. The Paytm stock surged by as much as Rs 52.9 or 6.7 percent to Rs 836.5 apiece on BSE — its highest intraday level since February 23.
After market hours on Friday, Paytm reported revenue of Rs 1,679.6 crore for the April-June period, as against Rs 890.8 crore for the corresponding period a year ago. ICICI Securities had estimated Paytm's quarterly revenue at Rs 1,780.6 crore for the quarter ended June 2022.
Paytm's net loss, however, widened to Rs 644.4 crore for the three-month period, from a net loss of Rs 380.2 crore for the year-ago quarter, according to a regulatory filing.
The rising revenue aided hopes of the company's move to profitability sooner than anticipated earlier.
Analysts have mixed views on the One97 stock, with some expecting up to 40 percent upside from Thursday's closing price.
According to Goldman Sachs, Paytm is firmly on the path to profitability. The brokerage expects the year ending March 2024 to be the first full year of adjusted EBITDA profitability.
Adjusted EBITDA is a key metric that determines a business's operating cash flow.
Goldman has a target price of Rs 1,100 for Paytm shares, which have lost nearly two-thirds of their value compared with the company's issue price.
Macquarie analysts are more skeptical on the Paytm stock. The brokerage maintained an 'underperform' rating on One97 with a target price of Rs 450, which translates to 42.6 percent downside from Thursday's level.
The brokerage, however, said the company's quarterly loss was below its estimate on account of a better-than-expected net payment margin.
Macquarie also said that Paytm's loan distribution business has gathered steam but concerns over competition and regulations remain from a long-term perspective.
Paytm said its loan distribution unit scaled up significantly over the last 12 months on higher adoption by users. According to the company, its loans increased 492 percent on year to 8.5 million (in volume terms), and 779 percent to Rs 5,554 crore (value).
CLSA expects Paytm to break even in the year ending March 2024, and is of the view that the stock factors in "much more".
"While our EBITDA breakeven expectation is similar to that of management, the stock factors in a long-term EBITDA trajectory that we think is difficult to achieve," said CLSA, which raised its target price for the stock by 30 percent to Rs 650 with a 'sell' rating.
The brokerage lowered its EBITDA loss estimate for the company in the years ending March 2023 and March 2024 by Rs 300-400 crore. It sees recent competition in merchant devices and a slowdown in medium-term growth in loan distribution as the key risk to earnings for Paytm.
Paytm shares continue to quote significantly below their IPO price for the ninth month running since a sanguine debut in November 2021.
Paytm's IPO — one of the biggest of all time in India — saw a subscription of 1.8 times the shares on offer, in contrast to most IPOs in 2021 that saw a robust response from investors.
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