Motilal Oswal initiates coverage on Paytm with a 'buy', expects firm to turn profitable by 2024-25

Paytm shares were in demand on Thursday after Motilal Oswal Financial Services initiated coverage on the digital payments firm's stock with a target price of Rs 865, implying upside potential of 34.2 per cent from its closing price on Wednesday.

Paytm shares rose on Thursday after Motilal Oswal Financial Services initiated coverage on the digital payments firm. | Image: Reuters

Paytm shares were in demand on Thursday after Motilal Oswal Financial Services initiated coverage on the digital payments firm's stock with a 'buy' rating and a target price of Rs 865 — implying upside potential of 34.2 per cent from its closing price on Wednesday. The Paytm stock finished higher by Rs 12.6 — or two per cent — at Rs 656.9 apiece on BSE, having jumped by as much as Rs 24.7 — or 3.8 per cent — to touch Rs 669 apiece at the strongest level of the day.

The brokerage is of the view that Paytm's two-pronged strategy will likely drive its profitability. Motilal Oswal expects Paytm to achieve a break-even in EBITDA terms by the financial year ending March 2025.

The estimate comes after Paytm said it achieved adjusted EBITDA break-even in the quarter ended December 2022, well ahead of its guidance.

According to Motilal Oswal, Paytm has grown its monthly transacting users (MTUs) to 90 million as of the financial year 2022-23, which provides a ready customer base to cross-sell its financial products to consumers. It also said that robust growth in subscription devices has helped in improving throughput and supported growth in merchant loans.

"Paytm has created a payments-led ‘super app’ and evolved into a comprehensive payments ecosystem covering payments, credit, insurance, merchants, wealth management, e-commerce services et al," Motilal Oswal Financial Services said.

The brokerage also pointed out that Paytm is among the largest payments platforms with a gross merchandise value (GMV) of around Rs 13.2 lakh crore in the year ended March 2023. Gross merchandise value is a key measure of revenue that determines the total value of merchandise sold over a platform over a given period of time.

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Motilal Oswal expects Paytm's loan disbursements to grow at a CAGR of 64 per cent over the three-year period ending March 2025.

How Motilal Oswal values Paytm

According to the report, Motilal Oswal has valued the Paytm stock basis an embedded value-to-EBITDA multiple of 18 times its earnings for the year 2027-28, discounted to the financial year ending March 2025 at around 15 per cent.

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