Bernstein predicts Paytm shares to rally by 23%, cites ‘a number of near-term catalysts’

International brokerage agency Bernstein has assigned a goal worth of Rs 1,100 to Paytm, signalling a major 23.4% upside potential for the inventory from its Wednesday closing worth. The agency maintained an “Outperform” ranking on Paytm, citing a number of key catalysts anticipated to drive the inventory larger within the close to time period.

In its evaluation, Bernstein initiatives that Paytm’s earnings per share (EPS) progress will observe a non-linear trajectory, supported by present income traces rising at a compound annual progress charge (CAGR) of round 20%, whereas oblique bills are anticipated to develop at a extra modest CAGR of 10%.

This, Bernstein highlights, might result in an EPS of INR 70 by FY30E, bringing the inventory worth nearer to the goal of Rs 1,100.

Right here’s what Bernstein highlighted:

Base case

Non-linear EPS progress: Bernstein’s evaluation of Paytm’s future progress is underpinned by a base case that assumes a CAGR of 20% in present income traces, with oblique bills rising at round a ten% CAGR.

This might translate to a goal EPS of INR 70 by FY30E, which helps the goal worth of INR 1,100. Bernstein expects a number of near-term catalysts to drive this potential upside.

Whole Price CAGR of 13%

Bernstein initiatives that direct prices for Paytm will develop at a CAGR of 16% (FY25-30E), whereas oblique bills are anticipated to extend at a ten% CAGR. That is anticipated to end in a 22% income CAGR, aided by an rising share of high-margin lending revenues.

Steady UPI market share and funds margin

Bernstein emphasises the steadiness of Paytm’s Unified Funds Interface (UPI) market share, together with unchanged internet funds margin (NPM). The brokerage believes that the potential rise in NPM from an elevated share of UPI funds might offset the affect of a better share of UPI funds in Paytm’s funds combine.

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Mortgage disbursal progress

Bernstein forecasts that mortgage disbursal will develop to round 3.6x FY24 quantity. This assumes that Purchase Now Pay Later (BNPL) merchandise don’t revive, and the amount of private and service provider loans disbursed on the platform will develop at a 35% CAGR between FY25E and FY30E, which is able to drive vital income for the corporate.

Improved Shopper MTUs

Bernstein expects a 15% CAGR in Month-to-month Transacting Customers (MTUs) for Paytm, pushed by enhancements in client engagement and platform usability. The agency means that near-term catalysts might assist the corporate develop MTUs, probably benefiting from a revival of its Cost Aggregator (PA) license software.

Key dangers

Regardless of the optimistic outlook, Bernstein additionally highlights quite a few key dangers that might affect Paytm’s future trajectory. These embody:

• A potential return to a excessive working expenditure (opex) progress trajectory, pushed by elevated competitors out there or the pursuit of “moonshot” initiatives
• The lack to halt the decline in Paytm’s market share in UPI funds, coupled with a possible deterioration within the firm’s mortgage distribution enterprise
• Regulatory adjustments that might additional affect Paytm’s operations, notably any that will weaken its mortgage distribution enterprise.

The choices for greater upside

Past the bottom case state of affairs, Bernstein identifies vital upside potential if Paytm can capitalise on further alternatives. These embody the potential revival of Paytm’s BNPL product and approval for its Cost Aggregator (PA) license.

The brokerage agency additionally notes that the approval for the PA license might sign the next likelihood of Paytm ultimately acquiring an NBFC license, though it believes the likelihood of those “moonshot” choices enjoying out stays low.

The shares of Paytm closed 3% larger at Rs 891.30 on the BSE on Wednesday.

(Disclaimer: Suggestions, strategies, views and opinions given by the specialists are their very own. These don’t characterize the views of The Financial Occasions)