Global financial investment and advisory firm CLSA has upgraded its rating on digital payments firm Paytm to Buy from Sell. The brokerage house said, "We keep all our estimates and TP unchanged. Upgrade to BUY from SELL with a TP of Rs 650."
CLSA said Paytm has more than $1 billion cash on the balance sheet and the cash burn should end in another 4-6 quarters. "Paytm trades at 16x EV/core Ebitda on an FY26 basis, discounted back to FY24," it said.
"While our interactions with several investors over the past four months suggest some discomfort or uncertainty on scaling up the lending business, we think that the stock warrants a look now," CLSA said.
"Net take-rate has improved 13 bps, but fixed cost absorption remains key Paytm’s net take-rate has improved from nil to 13 bps over the past two years driven by negotiating lower processing charges and introduction of its ‘Soundbox’ at 5m merchants," it added.
However, the brokerage house said Paytm needs to somehow curtail fixed costs, a 10 percent cut in fixed costs could result in a 25 percent core EBITDA upgrade for FY27.
Further, CLSA forecast 'cloud' revenue to double to Rs 14 billion over FY22-25 driven by increasing advertising revenue coupled with higher credit card sourcing income.
Also, Paytm started distributing credit cards for HDFCB and SBIC only recently and this has the potential to scale up. We think Paytm would be earning an upfront fee plus a share of the spending, it mentioned.
Meanwhile, Paytm founder and chief executive officer Vijay Shekhar Sharma is now off the Forbes India Rich List 2022.
First Published: Nov 28, 2022 10:40 PM IST
