Citi kept its Buy rating on One97 Communications NSE -0.13% (Paytm share price), citing the company’s growth prospects in device penetration, merchant payment GMV share, and lending upsell opportunities, as well as the 35 percent increase in the share price from Rs 737.70 to Rs 998.
Last week, the brokerage firm met with Paytm’s management at Citi’s Global Tech. Since then, the brokerage firm has shared three key takeaways from the meeting. One of them is that there is likely to be a cap on PPI Merchant Discount Rates (for both wallet and prepaid cards), which is in line with RBI’s August discussion paper. Management has identified increases in monthly transacting users (MTUs), device rollouts, and lending distribution through upselling as strategic priorities for driving growth.
The company’s leaders also want to increase contribution margins by using operational leverage and shifting the focus from cost controls based on marketing to controls based on product mix.
Citi Said About Paytm Share Price
Citi said that Paytm has 15 percent of its 30 million merchants using devices (4.5 million devices), and that adding devices would open up rental income streams, merchant payment GMV share opportunities, and loan (distribution) upsell opportunities.
Not only did Paytm’s UPI MTUs go up, but so did its wallet MTUs. Consumers (New-to-credit, eligible-for-credit) and businesses (QR-merchants) in under-served/financial inclusion markets are said to be major growth drivers.
The broker’s office said, “We put a value of Rs 429 per share on the Payments business based on an EV/GP ratio of 15x FY24E, which is in line with the EV/GP ratios of other global payment businesses (EV/S: 3x).
Financial Services company
Based on our analysis, the Financial Services company is worth Rs 353. This is based on an EV/S multiple of 15x (we expect stronger profitability in the financial services vertical and in line with global fintech providing similar services; multiple at 50% premium to global peers). Our estimate for the commerce and cloud vertical is 3x EV/S at the low end of global e-commerce valuations, or Rs 80 per share “the speaker kept talking.
Even though the brokerage’s quantitative model says the stock is high risk, the company’s strong net cash position and the fact that it is expected to spend less cash in the future do not support this rating.