Even as investors are dumping stock, global brokerage Goldman Sachs believes that the depression in share prices is offering a compelling entry point into India’s largest and amongst the fastest-growing fintech platforms.

After the 47% year-to-date dip seen in Paytm shares on concerns around the path to profitability, Goldman sees the stock rallying around 58% to hit Rs 1,100 in the next 12 months.

The target price is still below Paytm’s issue price of Rs 2,150. As compared to the current price, Paytm shares are still down over 67% for those who invested in the IPO.

“We see the business model as continuing to show strong traction, and within our internet coverage, view Paytm as one of the most compelling growth stories at an attractive price,” Goldman said in a report.

“While we recognize that lock-in expiry (86% of Paytm’s outstanding shares) in Nov ’22 may represent an overhang on the stock, we expect Paytm to deliver c.50% revenue growth for the next few quarters and continue its transition from an erstwhile payments-only business to one with a strong financial services portfolio,” it said.

With valuation at 3.6x FY24 EV/Sales, a 30% discount to India internet peer group, the brokerage has updated its Buy rating on Paytm and added the stock to conviction list.

Goldman’s analysis suggests the current share price is implying scenarios such as zero revenues from Paytm’s BNPL product and halving of take rates for other lending products, or adjusted EBITDA profitability not until FY27, or 0% revenue growth starting FY33, among other outcomes, which is seen as “unlikely and overdone”. The brokerage firm’s risk-reward analysis indicates 112% upside in a bull case vs 12% downside in a bear case.

Paytm is currently trading at 3.6x FY24 revenues, similar vs global peers, but with a CY21-24E sales CAGR of 38%, vs 29% for the peer group.

“On EV/gross profit, however, Paytm at 5.6x FY24 GP, trades at an 11% discount to peers, for a gross profit growth that is 1.3x vs peers. Even within India internet, Paytm’s growth outlook is similar vs peer group, but valuation is at the lower end,” Goldman said.

Following the report, Paytm shares were trading 2 per cent higher at Rs 699.9 on BSE in a weak market. Trendlyne data shows that out of the 11 analysts with a coverage on the stock, 6 have buy ratings and 3 have sell ratings with the remaining 2 calling it a hold.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)


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By Dipak

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