Brokerages upbeat on Paytm after management's strong commentary; see up to Rs 200 gains per share

Paytm Share Price: Paytm founder and CEO Vijay Shekhar Sharma said that the company expects its blended net payment margin to stabilise at 5 to 7 basis points due to increase in share of UPI in the payment business.

Paytm Share Price: A worker adjusts a hoarding of Paytm, a digital payments firm, in Ahmedabad, India, January 31, 2019. Pic: Reuters

Paytm Share Price: Shares of One97 Communications, the parent company of Paytm, on Friday, zoomed more than 5 per cent as the Dalal Street turned optimistic after the management's strong commentary on growth, profitability. The stock opened at Rs 507.50 on the NSE and rallied 5 per cent to hit day's high of Rs 525.60. At noon, it quoted Rs 522 apiece.

On Thursday, One97 Communications in a presentation made before analysts said that the company, at present, earns net payment margin of 7 to 9 basis points (bps) of gross merchandise value (GMV) on processing. UPI gives us 3 to 4 bps and other instruments give 15 to 18 bps.

Paytm founder and CEO Vijay Shekhar Sharma said that the company expects its blended net payment margin to stabilise at 5 to 7 basis points due to increase in share of UPI in the payment business.

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Sharma said that the current phase is early days of payments in India. UPI has about 25 crore signed up customers and there are only total approximately 1 crore devices in market.

"We believe overall subscriptions for payment and other services will be a large market. India could have potential of 10 crore merchant entities and more than 50 crore payment customers in near term. Expanding merchants' business by offering coupons, deals, marketing and loyalty will create more revenue and profit for our commerce business," he said.

The company sees great opportunity in bank partnerships to sell their products, the Noida headquartered fintech said.

Paytm Share Price Target

Meanwhile, global brokerage firm CLSA has given a Buy call on Paytm with a target price of Rs 650 apiece.

CLSA said that on profitability, the company expects to become free cash flow positive in the next 12-18 months, and is in line with the view of cash burn ending in next 4-6 quarters. The company has more than $1 billion net cash (equating to more than 25 per cent of its current Market Cap).

Morgan Stanley has maintained a rating of ‘equal weight’ on Paytm stock and sees an upside of 194 per share. The brokerage firm has set a target of Rs 695.

The brokerage firm noted that Paytm's management doesn’t see any significant risk to its payment margins. As per management, the net payment margin should remain broadly steady.

Paytm shares have tumbled 18 per cent in the past one month. YTD, the counter has yielded a negative return of 60 per cent, resulting in wealth loss of investors. The stock is currently available at a discount of nearly 70 per cent from the IPO issue price of Rs 2150.

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