Paytm shares get upgrades, targets revised higher after first profit without one-offs

Brokerage firm Jefferies has upgraded shares of One97 Communications Ltd., parent company of payment services provider Paytm, to “buy” from its earlier rating of “hold”, on Wednesday, July 23.The upgrade comes after Paytm reported a net profit for the June quarter after market hours on Tuesday. This was the first net profit reported by the company excluding any one-offs. Besides Jefferies, other analysts covering the stock have also raised their price target.

Along with the upgrade, Jefferies has raised its price target on Paytm to ₹1,250 from ₹900 earlier.

Jefferies believes that while the Monthly Transacting Users (MTU) and Gross Merchandise Value (GMV) growth on a sequential basis is encouraging, but contributing margins will stabilise a little lower over the next two to three quarters.Paytm’s current valuation is at a discount to PB Fintech and the brokerage expects compounding-led returns for the stock. Clarity on payment aggregator license, reversion to BNPL / Wallets and MDR on UPI could be some positive catalysts for Paytm, according to Jefferies.

Citi has also raised its price target on Paytm to ₹1,215, while maintaining its “buy” recommendation for the stock. It wrote in its note that the earnings beat was driven largely by incremental cost efficiencies and higher-than-expected benefits from relatively upfront nature of non-DLG contribution profits.

While Paytm’s merchant business continues to do well, the consumer business remains tepid, although there are signs of recovery, according to Citi.Bernstein has maintained its “outperform” recommendation on Paytm with a price target of ₹1,100 per share, calling the June quarter profit an important milestone for the business.

It said further that the business will remain profitable in the coming quarters but the sustainability of the current profit levels will be subject to sequential revenue growth.

On the flip side, Macquarie has an “underperform” rating on Paytm with a price target of ₹760, which implies a significant downside from current levels. It said that there are potential levers for earnings upside going forward for the company, eve as personal loan disbursements remain muted.

UBS too has retained its “neutral” recommendation on the stock, calling it a modest quarter for payments and market shares remaining flat in GMV. The company is guiding for EBITDA margin to be between 15% to 20% in two to three years.

Out of the 19 analysts that have coverage on Paytm, 10 of them have a “buy” rating on the stock, six of them say “hold”, while three have a “sell” rating.

Shares of Paytm ended near the highs of the day on Tuesday ahead of the results announcement at ₹1,053.1. The stock has risen over 3x from its all-time low of close to ₹300, which it fell to in February 2024.