Paytm Shares Surge 3% to Achieve 52-Week High as Bernstein Commences Stock Coverage with an “Outperform” Rating

Paytm, under the corporate entity One 97 Communications, witnessed a commendable escalation in its share price, marking an increase of nearly 3 percent. This notable upsurge propelled the stock to attain a fresh 52-week pinnacle, reaching a trading value of ₹931 during the initial trading hours on Thursday, as observed on the Bombay Stock Exchange (BSE).

Commencing the trading session at ₹925.05, a notable uptick from the preceding closing value of ₹905.60, the stock displayed remarkable early momentum. Swiftly advancing by 2.80 percent, the stock reached its zenith for the 52-week duration, achieving a trading mark of ₹931. However, as the trading session progressed, the stock’s momentum exhibited a mild abatement. At approximately 10:35 am, the stock retained an uplift of 2.24 percent from its previous close, transacting at ₹925.85.

Over the past half-year period, Paytm’s shares have demonstrated robust and substantial gains, experiencing a notable surge of approximately 49 percent. This impressive growth significantly outpaces the performance of the equity benchmark indicator, the Sensex, which has concurrently achieved a comparatively modest increase of around 11 percent within the same temporal frame.

In a recent development, Bernstein, a distinguished foreign brokerage firm, has embarked on the comprehensive coverage of Paytm’s stock, a prominent entity in the financial technology sector. This strategic move by Bernstein entails a meticulous evaluation of Paytm’s business operations, financial performance, competitive positioning, and growth prospects. Following this thorough analysis, Bernstein has conferred an ‘outperform’ rating on Paytm’s stock.

Of notable significance is the target price projected by Bernstein for Paytm over a span of 12 months. The brokerage firm has set a target price of ₹1,100, signifying its expectation that the stock has the potential to appreciate and attain this valuation within the specified timeframe. This projection is grounded in Bernstein’s nuanced understanding of market dynamics, sector trends, and Paytm’s intrinsic strengths as a business entity.

Bernstein has provided a judicious assessment of the digital lending landscape, highlighting the nascent stage of determining definitive victors in this domain. This observation is particularly pertinent considering the imminent emergence of Jio Financial Services as a potential contender. However, amidst this dynamic landscape, Paytm has garnered attention for positioning itself strategically within the sphere of disruption.

Bernstein’s projections for Paytm reflect a positive outlook, forecasting a sustained trajectory of robust growth within its lending operations. This projection encompasses a noteworthy compound annual growth rate (CAGR) of almost 50 percent spanning the fiscal years 2023 to 2030.

A pivotal aspect of Bernstein’s foresight is the anticipation of a significant escalation in Paytm’s loan disbursal volumes. This expansion is poised to culminate in an envisaged market share of nearly 4 percent by the fiscal year 2026, within the high-yield household lending segment. This notable achievement is aligned with the context of an interest rate exceeding 13 percent.

Moreover, as part of its comprehensive analysis, Bernstein foresees Paytm’s payments segment achieving stability in its margins. This stabilization is a key factor contributing to the brokerage firm’s estimation that Paytm’s business operations are on track to attain a break-even point by the fiscal year 2025. This juncture represents a pivotal milestone where operational expenses are offset by revenue, facilitating financial equilibrium.

Bernstein’s projections extend further, forecasting Paytm’s potential to generate substantial earnings in the form of earnings per share (EPS). By the fiscal year 2030, the brokerage firm estimates an EPS of nearly ₹130, signifying the financial value that Paytm is poised to offer its shareholders.

In its discerning analysis, Bernstein aptly acknowledges the evolving nature of the digital lending sector. While Paytm’s prospects are promising, the firm’s assessment underscores that the landscape is not immune to potential challenges. Specifically, Bernstein has identified adverse regulatory shifts as a significant downside risk that Paytm and similar players in the digital lending sphere may encounter.

During the recent period, Paytm’s consumer outreach has demonstrated considerable expansion, evident through the discernible growth in its average monthly transacting users (MTU). Notably, this metric has surged to exceed 9.2 crore users as of the culmination of the June quarter.

Paytm’s management remains buoyant regarding the company’s future prospects. They hold a positive outlook on India’s market potential, as the management envisions the country to be poised for the emergence of a substantial user base. Specifically, Paytm’s management envisages the potential for at least 10 crore merchants and an even larger contingent of more than 50 crore payment users in the foreseeable horizon.

In accordance with its strategic vision, Paytm has allocated resources toward the advancement of artificial intelligence (AI) technologies. The company is diligently investing in AI initiatives, with a discernible focus on crafting a comprehensive artificial general intelligence software stack. This strategic endeavor underscores Paytm’s commitment to harnessing the transformative potential of AI and emerging technologies.

Paytm’s intent and commitment to augmenting its AI capabilities are prominently reflected in its annual report for the fiscal year 2022-23. The company’s emphasis on this technological frontier is evident in its pronounced goal to advance its AI-driven initiatives, marking a pivotal step toward innovation and sustainability.

Data from the June quarter reveals a notable increase in the shareholding of Foreign Portfolio Investors (FPIs) in Paytm. FPIs have strategically augmented their ownership in One97 Communications, the corporate entity behind Paytm. Notably, FPIs have escalated their stake to 16.86 percent by the conclusion of June 2023, as compared to a stake of 5.45 percent recorded in June 2022.

Paytm recently unveiled its financial results for the first quarter of fiscal year 2023-24 (Q1FY24), thereby providing insights into its operational performance. The company’s consolidated net loss for the period amounted to ₹357 crore, exhibiting a substantial reduction compared to the corresponding period in the previous year, during which the net loss stood at ₹6,444 crore. This noteworthy improvement in financial performance highlights Paytm’s concerted efforts towards financial stabilization and optimization.

However, it is pertinent to note that while the net loss for Q1FY24 displayed significant reduction from the previous year, there was a widening in comparison to the preceding quarter of fiscal year 2022-23. Specifically, the net loss of ₹357 crore for Q1FY24 contrasts with a net loss of ₹168 crore reported in the previous March quarter.