After a lull, this fintech firm might surprise the Street in the next one year, say analysts

Shares of One97 Communications — Paytm's parent company — have been underperforming the market, but a domestic brokerage house see this fintech's stock almost doubling in 12 months.

Dolat Capital Market, which has a ‘buy’ call on Paytm's shares, sees a 90 percent upside from Wednesday’s closing price of Rs 736.9. The brokerage firm has set a target price of Rs 1,400.

What Dolat Capital likes about the Indian mobile payments and financial services company is that it has prudently created segments to generate regular revenue flows by way of annuities, such as Soundbox for small merchants that has witnessed a massive adoption, and postpaid loans for consumers.

The company had said in a business update earlier this month that Paytm disbursed Rs 84.75 lakh in loans (in partnership with top lenders) in the June quarter, registering a nearly 30 percent quarterly growth, or 492 percent year-on-year.

“Rapid growth of our lending products brings us an attractive profit pool. We are also seeing increases in average ticket size due to the scale-up of the personal loans business in particular,” the company had said.

The domestic brokerage firm is confident that Paytm’s business model and strategy ensures a timely path to profitability by the first half of the 2023-24 fiscal, and will eventually create large pools of profit.

Echoing this opinion, Avinash Gorakshakar, Head of Research, Profitmart Securities, said that Paytm is a promising fintech play and could do well over the next three years.

He added, “In the near term, markets will await the time when the company starts generating positive earnings, that is September 2023 onwards.”

“Paytm ended the fiscal year with strong growth across our businesses and reductions in EBITDA losses, which puts us well on track to achieve operating break-even by the quarter ending September 2023,” the company had said in its business update for the quarter ending March 2022.

Paytm had made a weak debut on November 18, 2021 by getting listed at a discount to the issue price of its IPO.

He said that Paytm’s market share in the wallet business is decreasing with an increase in competition, and also, it had some restrictions from RBI to approve new KYC (Know Your Customer) for a longer period of time.

Secondly, ancillary services provided by the company, such as investment activities or travel bookings, are under huge price pressure and therefore, margins are too thin for them to survive.

Ghodasara added, “Technically, the stock may show some strength in coming weeks and can move upto 850-1000 levels, but that should be considered as an opportunity to exit if you are trapped at higher levels or bought at lower levels. For new investments, wait for 1-2 quarters!”