JPMorgan remains overweight on Paytm but slashes target price

JPMorgan sees Paytm at Rs 1,000, down from the earlier target of Rs 1,200. The target price for the counter was Rs 1,350 before that. Even the latest target price signals a potential 60 per cent upside in the counter.

JPMorgan has backed Paytm’s path to profitability, citing the reduction in Adjusted EBITDA loss with better cost controls are the key stock drivers for the stock.

The brokerage noted that improved profit markets set the stage for operating leverage from the second quarter.

“Lending business scale up, an increased contribution from devices and credit card sourcing should result in consistent quarterly improvement in contribution profits which should touch near 40 per cent by 4Q23.”

Indirect cost control is the key to the EBITDA breakeven. The company has sharply increased its employee costs led by hiring in field force and the indirect cost will moderate from Q2FY23 onwards, said JPMorgan.

However, this target price is not even half of the issue price, Rs 2,150. Paytm launched its IPO in November 2021 and garnered Rs 18,300 crore.

Since its listing, the scrip has not scaled its issue price even once. On Tuesday, the scrip was trading up at around Rs 625 levels, about 71 per cent below its issue price.

Paytm reported a widening net loss in the March 2022 quarter of Rs 761.4 crore compared to Rs 441.8 crore in the same quarter last year. Revenue from operations zoomed 89 per cent to Rs 1,540.9 crore from Rs 815.3 crore.

The company’s average Monthly Transacting Users (MTU), i.e., the number of unique users with at least one successful payments transaction in a month) has grown by 41 per cent YoY to 7.09 crore, the company said in a statement.

Another global brokerage Goldman Sachs said a target of Rs 1,070 on the stock, whereas

sees it at Rs 1,285, keeping the target unchanged.

On the contrary, Macquarie kept its Rs 450 target intact in its report, released two weeks ago, as it believes profitability is still an uphill battle and that EBITDA losses may take 12 quarters to break even.

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