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Goldman Sachs says Paytm’s current share price is a compelling entry point, ICICI Securities issue Buy rating

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Paytm continues to get the confidence of top brokerages, who are bullish about the companys “immense growth potential”. Goldman Sachs pointed out the strong growth potential for Paytms lending business, saying the firm will hit $10 billion in disbursals by FY26E, vs $900 million in FY22.

Analysts believe Paytm’s ESOP costs will gradually reduce and are currently at par with other listed tech cos in India as well as globally ICICI Securities report said that by FY26, Paytm’s monthly transacting users are likely to double

Paytm, India’s leading digital payments and financial services, continues to get ‘Buy’ calls from top brokerages. After Goldman Sachs, BofA, Morgan Stanley and Dolat Capital, ICICI Securities has also issued a Buy rating for Paytm.

Goldman Sachs had given Paytm a Buy rating, with a target price of Rs 460 on February 7. On Monday, the investment bank reiterated its Buy rating, pointing out key notes for investors. The report said that “the current share price offers a compelling entry point into India’s largest and amongst the fastest growing fintech platforms”.

ICICI Securities has now initiated coverage for Paytm and highlighted the company’s strong growth potential in terms of target addressable market (TAM), giving a “Buy’ rating and target price of Rs 1,362.

Goldman Sachs highlighted that Paytm continues to gain market share across both UPI and non-UPI payments, besides strong growth in lending business. It said Paytm’s net payments take rate or spreads have, defined as revenue less payment processing charges (PPC) as a proportion of Gross Merchandise Value (GMV) have been improving.

“Paytm’s net payments take rate (or spreads, defined as revenue less payment processing charges as a proportion of GMV) have been improving. From 8 bps in 3QFY22, we forecast spreads to widen to 11 bps by FY26E as a result of Paytm’s scale benefits; increasing share of UPI for wallet money addition; rising share of wallet for online payments (vs in-store, which have zero MDR); and rising share of device rental revenues,” the brokerage noted.

Paytm’s ESOP costs to gradually reduce, currently at par with other listed tech cos in India as well as globally.

Goldman Sachs noted that Paytm’s Employee Stock Ownership Plan (ESOP) costs will reduce gradually and is currently at par with other listed tech companies in India as well as globally.

“We forecast ESOP charge for Paytm to be highest (at Rs 3.9 billion per quarter) for first two years (when the first tranche vests, per Paytm), and then gradually reduce over the next three years. Paytm also has about 15 million un-granted options and per our estimate, the total share count could increase by 46 million (or 7 per cent of current outstanding), if all options were to be vested/granted,” said the Goldman Sachs note.

“We note that as a proportion of total operating expenses, Paytm’s ESOP cost is not significantly different vs other global platforms such as Airbnb and DoorDash, as well as recently listed India internet peers such as Zomato and PB Fintech.”

Meanwhile, ICICI Securities in its note called out Paytm’s immense growth potential in terms of target addressable market (TAM), buoyed by its leadership position in India’s digital payments ecosystem.

The brokerage said Paytm’s digital payments business has the potential to grow strongly in future, reflecting its “sizeable two-sided digital ecosystem with proven leadership in payments”.

“Paytm is well ahead in the race of digitisation, building a robust full stack technology suite integrated across the ecosystem with distinct features, high success rates, easy user interface, and customer convenience. It has an early mover advantage in rolling out wallet, FASTag, and is ahead of the curve in (skill based) online gaming, too,” said the note by ICICI Securities.

During the October-December quarter, the company saw its revenues jump by 89 per cent y-o-y to Rs 1,456 crore, EBITDA losses (before ESOP expense) came down to Rs 393 crore from Rs 488 crore during the same quarter in the previous year.

In its latest filing with the stock exchange, Paytm had shared its highest ever growth in monthly transacting users to 68.9 million users. Now, it seems analysts are bullish about this growth momentum to continue. ICICI Securities highlighted that Paytm’s monthly transacting user base (MTUs) is likely to double over FY22-26E to more than 120 million.

Paytm had said that in Q3 FY 22, its merchant payments-led GMV stood at Rs 2.5 lakh crore. Analysts at ICICI Securities forecast that Paytm’s merchant GMV would grow at 36 per cent CAGR over FY22-26E to reach Rs 30 trillion and within this, MDR linked GMV is estimated to grow at more than 25 per cent.

The brokerage noted that Paytm’s contribution margin has potential to further improve 40 per cent-46 per cent by FY24E/FY26E.

“Aided by this contribution margin, there is some visibility of EBITDA getting into positive territory post FY26E. Adjusted EBITDA margin (excluding non-cash ESOP charges) will turn positive by FY26,” it added.

Both Goldman Sachs and ICICI Securities believe that Paytm’s lending business, in which it partners financial institutions to provide loans on its platform, has the potential to grow rapidly in the medium term.

Goldman Sachs said: “We believe Paytm will be able to continue to scale its lending portfolio, and forecast $10 billion in disbursals by FY26E, vs $900 million in FY22. Paytm has continued to add new partners for its lending products over the last few quarters, suggesting to us that lenders are finding value in this partnership.”

Paytm’s lending business witnessed record growth in January 2022, maintaining the positive trend witnessed in the Q3 FY 22 earnings. Last month, Paytm registered 1.9 million loan disbursals, marking a y-o-y growth of 331 per cent; aggregating to a total value of Rs 921 crore (y-o-y growth of 334%). This also included a staggering growth in its Buy Now, Pay Later product – Paytm Postpaid.

“For Paytm’s BNPL product, 30 per cent + of the monthly sign-ups (Dec ’21 quarter) were new-to-credit customers, helping expand the credit base for Paytm’s financial partners. Per Paytm, performance of the company’s loan portfolio has resulted in higher confidence from lenders to increase the scale of this business,” it added.

Meanwhile, ICICI Securities also shared an optimistic outlook about Paytm’s lending business, estimating 18-19 million consumers (15 per cent of MTUs), and an increasing number of merchants to avail lending products through Paytm platform by FY26E.

Sharing a medium-term outlook, it estimated the total lending business revenue to grow at 61 per cent over FY22-26E.

Business

India Set To Lead The World In 6G, Says Telecom Minister Jyotiraditya Scindia

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In a bold declaration at the inaugural address of the Indian Mobile Congress 2024 (IMC) on Tuesday, Union Telecom Minister Jyotiraditya M. Scindia has said that India will lead the world in the adoption of 6G.

In his address at the event, Scindia emphasized that India is now prepared to lead the world in the development of 6G technology.

India’s Technological Rise: From Following to Leading

“It is our belief and commitment that India, which followed the world in 4G and marched with it in 5G, will lead the world in 6G,” Scindia stated.

The minister highlighted India’s remarkable achievements in the telecommunications sector over the last ten years, the country has become a global leader in innovation and technology.

“It’s a fundamental change in approach towards technology development,” he said, attributing this transformation to Prime Minister Narendra Modi’s leadership.

Telecom Sector Growth Under PM Modi’s Leadership

“Prime Minister who has always put people at the heart of progress Sabka Sath, Sabka Vikas Sabka Vishvas aur Sabka Prayas combined with his second motto, One Earth, One Family and One Future. It is combination of these two mottos that leads India under PM Narendra Modi leadership one of the leading sectors in the committee of Nations,” Scindia said.

Scindia underscored government’s initiatives to bridge the digital divide, particularly through the BharatNet program, the world’s largest rural broadband connectivity initiative to connect every panchayat of the nation. Over the past three years, the government has invested more than USD 10 billion and laid 7 lakh kilometres of fiber across rural India.

Digital Payments and UPI: Pillars of India’s Digital Economy

He cited staggering growth in mobile and broadband connectivity, with mobile connections rising from 94 million to 1.16 billion, and broadband users growing from 60 million to 924 million in just a decade. India’s optical fibre cable (OFC) networks has expanded from 11 million kilometers to 41 million kilometres over the last ten years, he added.

The minister further said that this growth is accompanied by the success of India’s digital payment systems, the 4G stack, and the Unified Payments Interface (UPI), which serve as pillars of India’s digital economy are expected to contribute significantly to the global digital infrastructure.

Scindia further noted that the government’s efforts to ensure that policy frameworks keep pace with the rapidly evolving digital landscape. “The recent changes to the Telecommunications act 2023 is a case in point. It has been drawing light upon hither to undressed areas such as a high potential sector of satellite communications, addressing the challenges of the digital leader. The most important being cyber security. The telecom sector much like other growth critical sectors in India is aggressive, is ambitioushe said.

“The telecom sector much like other growth critical sectors in India is aggressive, is ambitious and its outlook in our Journey from Amritkal to Shatabdikal is to lead the world,” Scindia said. By mid-next year, India will have achieved 100 per cent saturation of 4G across the entire country, covering even the most remote villages, the minister said.

He emphasised PM Modi’s vision of India as a first mover in 6G technology, underscoring the nation’s resolve to lead the world in future telecom innovations.

“The attitude put forward by the prime minister of not just embracing, but raising ourselves to becoming the first mover in the 6G technology,” he added.

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Indian Markets Gave Better Returns Than China In Last 5 Years, Says Sebi Member

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Sebi Whole-time Member Ananth Narayan G on Monday reminded investors that Indian equities have consistently delivered 15 per cent returns over the last 5 years whereas the same has been zero or even negative in China.

Terming the Indian markets “sone pe suhaga” for delivering higher returns for lower risks, Narayan also flagged a few areas of caution for investors and asked them to be conscious of the risks.

“There’s a lot of talk about China markets over the last few days. But over the last five years, while Indian markets have given around 15 per cent compound annual growth rate consistently, Chinese markets are nowhere close to that. It’s almost zero. In fact, in some cases, like in Hong Kong, it’s actually negative,” Narayan said.

Speaking at an event marking the start of the Investor Awareness Week at NSE, Narayan said FY24 was a “remarkable” year for India, with the benchmark indices returning 28 per cent and the volatility just 10 per cent.

“That’s like ‘sone pe suhaga’. It’s like the best of all worlds: low risk and very high return,” Narayan said, underlining that there are side effects of this as well.

Making it clear that it will not be the same going forward and investors should not assume it to be a one-way street, Narayan said such handsome returns can lead to complacency and pointed to a lot of youngsters opening up demat accounts to join the bandwagon.

Educating people about risks is very important, Narayan said, giving the analogy of driving a car. “There has to be a light push on the accelerator to get more investors to provide risk capital for the economic growth, we also need to be aware of risks and use the brakes if need be.” He said that 40 per cent of the small and midcap scrips have shot up by 5 times in the last five years, because of an imbalance between inflow of investor money and supply of new paper.

On its part, the capital markets regulator is trying hard to ensure that fund-raising clearances are done early so that there is a steady stream of quality paper supply in the market.

From a broader, longer-term perspective, Indian markets will only go north from here given the economic growth prospects in the country, Narayan said, issuing specific advice to investors.

Investors need to have the right intermediaries to capitalise on this opportunity presented by India, and not fall for the unregistered and fly-by-night ‘finfluencers’ who might be driven by vested interests, he said.

Using the oft-repeated idiom of “all roads lead to Rome”, Narayan remarked that Rome is not a traveller-friendly place and one may get scammed there as well. Therefore, it is important to seek advice from the right people for the investors, he said.

He also said that it is in investors’ interests to trade less and stay invested for longer for higher returns, and added that studies prove the same.

Sebi, which has flagged certain areas like derivatives recently, is not against speculation or participants taking short-term trades, but it would want investors to understand the risks, Narayan said.

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Ratan Tata Rubbishes Rumors Of ‘Critical Health’; Says No Cause For Concern

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Ratan Tata Rubbishes Rumors Of 'Critical Health'; Says No Cause For Concern

Tata Group’s Ratan Tata has denied rumours of his critical health that have been reported and have surfaced in the recent hours.

Ratan Tata’s associates took to his official Instagram account to debunk the news of him being ‘Critical’.

In the post, Ratan Tata said, “I am aware of recent rumors circulating regarding my health and want to assure everyone that these claims are unfounded. I am currently undergoing medical check-ups due to my age and related medical conditions.

There is no cause for concern. I remain in good spirits and request that the public and media respect refrain from spreading misinformation.

For more than fifty years, Ratan Tata has led the Indian business community’s entrance hall. The 86-year-old has been suffering from illnesses associated with ageing. Tata has participated in social life to the best of his limited ability despite his health issues.

Recently, on the occasion of Gandhi Jayanti, on October 2, Ratan Tata, expressed his congratulations to the Prime Minister on this occasion. “I congratulate the honourable Prime Minister on the 10-year commemoration of programmes that have benefitted millions in rural India.”

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