Paytm on track of profitability, says Emkay Global; upgrades stock to ‘Add’, hikes target price by 100%

Paytm share price jumped over 3% on Tuesday after the company received ratings upgrade from a domestic brokerage firm. Paytm shares gained as much as 3.30% to ₹673.05 apiece on the BSE.

Emkay Global Financial Services upgraded its rating on One 97 Communications, the parent company of fintech giant Paytm, to ‘Add’ from ‘Reduce’, while raising its DCF-based target price by 100% to ₹750 per share from ₹375 earlier. Paytm share price target implies an upside of over 15% from Monday’s closing price.

The brokerage firm cited easing regulatory pressures and effective cost optimization strategies of the company for its positive outlook.

“Easing regulatory stance shall pave the way for approvals from the NPCI and RBI to onboard new users / online merchants which should drive the business turnaround. This, coupled with its cost optimization measures, should put Paytm on the early path to profitability,” said Anand Dama, Senior Research Analyst at Emkay Global Financial Services.

Emkay Global emphasizes Paytm’s strong position in the market, having retained its merchant franchise at approximately 41 million. Additionally, it said Paytm has successfully transitioned its user base to new partner banks, noting that the company’s merchant lending business is expected to become a key growth driver in the near-to-medium term.

Moreover, Paytm’s cost optimization measures have been central to the firm’s strategy. Dama said that Paytm has embarked on a significant cost-cutting initiative through voluntary and involuntary staff attrition, while also limiting marketing spends as the payment business shifts primarily to UPI.

Thus, we expect opex (ex-depreciation/ESOP) to fall 15% YoY in FY25E. This, along with improving traction in its broking business and interest income on sale proceeds from the entertainment business, should help it turn Operating EBITDA (ex-ESOP and UPI incentives) positive by 4QFY25E,” Dama said.

Better revenue growth from the reinvigorated payment and lending business, continued cost optimization, and reducing ESOP cost should further help it turn PAT positive by FY27E versus FY28E earlier, he added.

In Q1FY25, Paytm reported operating revenue of ₹1,502 crore and a Gross Merchandise Value (GMV) of ₹4.3 lakh crore, marking a 27% year-on-year increase, underscoring the company’s resilience and growth potential in the evolving financial services landscape.

Paytm share price

Paytm shares are currently trading at a premium (EV/TTM operating revenue: 4x) to profitable global paytech peers like PayPal or Paysafe (2.3x), given India’s growth premium, as well as due to its differentiated loan distribution business; however, it is still at a discount to profitable BNPL players like Affirm (4.9x), the brokerage firm noted.

It believes Paytm’s further re-rating will be contingent on faster recouping of lost consumer MTU, strong bounce-back in the lending business as partner/attrition issues ease, and no further regulatory disruption.

Paytm share price has recently gained momentum and the stock has risen over 19% in one month. Paytm shares have jumped more than 61% in three months, while its year-to-date (YTD) returns stand at just over 4%.

At 11:25 am, Paytm shares were trading 1.50% higher at ₹661.25 apiece on the BSE. 

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