Citigroup initiates ‘buy’ rating on Paytm, raises target price by 32%

Citigroup Research has launched a buy rating on One97 Communications Ltd, the parent company of Paytm, and boosted its target price to Rs 910 per share, up 32% from current levels.

According to Bloomberg, the stock currently has five buys, two holds, and three sells. The stock was trading at Rs 664 on the BSE at 3 p.m., down 3.6 percent from the previous close.

Regulatory challenges and concerns about profitability in the payments verticals have caused the stock to plunge over 70% from its IPO price of Rs 2,150.

Citigroup Research, on the other hand, believes that these predictions are overly negative, and that Paytm’s values are attractive at the present market price.

In a recent note to investors, Citigroup stated, “We think Paytm has several potential levers to drive scale and improve profitability substantially, leveraging its high-frequency user base of 71 million MTUs (up 41 percent YoY in FY22) and 25 million+ merchants.”

Paytm is one of the major digital payment platforms, featuring merchant payments, travel and entertainment ticketing, buy-now-pay-later (aka BNPL) and MSME loans as online sectors.

Paytm’s full-stack technological platform, integrated ecosystem, and large customer/merchant base allow it to quickly launch and scale new use cases, possibly extending its total addressable market (TAM), according to the report.

“We expect Payments GMV to grow at 44 percent CAGR over FY22-26E to $500 billion and overall revenues (incl. financial services) to reach Rs151 billion ($2.1 billion)–32 percent growth CAGR. We expect Adj. EBITDA break-even in FY25E (management guidance: 2HFY24) & Adj. EBITDA margins at 11 percent in FY26E (US$236mn)”, Citigroup Research report stated .