Paytm Stock Falls 8%, Drops To 52-Week Low, Should You Buy?

One97 Communications, the Paytm parent company stock, fell to a new 52-week low today, at Rs. 483.20 a piece. Amid strong Q2 earnings reports, the stock fell to a fresh low on November 22. Brokerage firms are bullish on the stock of Paytm and recommended buying. Paytm's revenue from operations was buoyed by an acceleration in the lending business, a rebound in payment services to merchants, and an uptick in cloud revenue. ICICI Securities, a leading brokerage firm has maintained a Buy rating with an unchanged target price of Rs. 1,285 based on customer lifetime value methodology.

Stock To Buy: Target Price

The Current Market Price (CMP) of Paytm stood around Rs. 493.90, falling by 8% in trade today. ICICI Securities has estimated a Target Price for the stock at Rs. 1,285. This stock has the potential to give a 160.64% return, in the upcoming 12 months. This large-cap stock has a market capitalization of Rs. 31,996 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 150
97Target Price	Rs. 181
Potential Upside	160.64%
52-week high share price	Rs. 1,873.70
52-week low share price	Rs. 483.20

Strong Q2FY23 earnings report

In Q2 FY23, the company reported strong revenue growth at 76% YoY gain, which stood at Rs. 1914 crore. Its EBITDA before ESOP cost was reported to be at a strong position with a 61% YoY gain to Rs. 166 crore. One 97 Communications (Paytm) continues to improve its revenue and margin profile, evident in the narrowing of consolidated loss at Rs. 5.7bn in Q2FY23 (vs loss of Rs. 6.5bn in Q1FY23). With 32% QoQ growth in disbursements led by personal and merchant loans, financial services revenue grew 29% QoQ (292% YoY).

Net payment margin improves

Net payment margin grew 16% QoQ to Rs. 4.4bn given 9% QoQ growth in payment revenue while rise in payment processing charges was capped at 7.5%. Payment revenue build-up was supported by continued platform expansion across MTU and merchant base, growth in subscription (and MDR) revenue from offline merchants and higher GMV from online merchants in payment gateway business. Its contribution towards operating revenue now stands increased at 18% in Q2FY23 (vs 9% in FY22).

Sharp acceleration in lending business

The performance was characterized by sustained lower processing charges and net payment margin improving a tad; sharp acceleration in the lending business with disbursements of Rs. 73bn; enhanced contribution/adjusted-EBITDA (before ESOP cost) margin with higher financial services/cloud revenue growth further aided by lower indirect costs; sustained growth in monthly transacting users (MTUs), deployment of offline devices and continued build-up of the gross merchandise value (GMV).

Downside

However, on the downside, the brokerage firm mentioned: contribution margin expansion capped at 84bps QoQ to 44.1% due to a 34%/15% QoQ increase in promotional/other direct expenses, a decline in commerce revenue. Steady improvement in margin profile with better monetization suggests an achievement of operating profitability (positive EBITDA before ESOP cost) ahead of its guided timeline of Q2FY24. But, its commerce revenue declined 10% QoQ as it was a seasonally weak quarter for entertainment ticketing business. Nonetheless, it grew 49% YoY. Decline in commerce revenue was offset by 31% QoQ growth in cloud revenue led by scale up in credit card distribution and traction in PAI cloud. It also grew 58% YoY.

Disclaimer

The above stock was picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.