Paytm Poised for Global Fintech Recognition

Paytm Poised for Global Fintech Recognition
Paytm Poised for Global Fintech Recognition
Paytm Poised for Global Fintech Recognition
Paytm Poised for Global Fintech Recognition

Paytm Poised for Global Fintech Recognition

Paytm Poised for Global Fintech Recognition

Paytm’s Transformation: Paytm Poised for Global Fintech Recognition

Fintech giant Paytm is set to make its mark on the global stage as one of the few large and profitable fintech companies worldwide. However, its share price has yet to reflect this significant change in profile, according to global brokerage firm Jefferies.

Jefferies has initiated coverage of One 97 Communications, Paytm’s parent company, with a ‘Buy’ rating and a target price of ₹1,300 per share. This target price implies an upside of over 37% from the closing price on Wednesday.

Accelerated Monetization and Profitability

As India’s leading payments provider, Paytm has expedited the monetization of its vast ecosystem, particularly through the expansion of its credit business. Jefferies anticipates continued growth in credit originations and improved margins in payments, which will lead to profitability ahead of market expectations. They forecast that Paytm will turn profitable in the next four quarters and join the select group of large, profitable fintech companies that enjoy strong growth (over 30%), double-digit EBITDA margins, and stable profitability. Despite these positive developments, Jefferies notes that Paytm’s valuations, at 3.6x FY25 EV/revenue, remain at a 40% discount compared to this group.

Robust Financial Performance

Paytm’s transformation is clearly evident in its financial performance. With just a 5% user penetration, the company’s loan disbursals have surged tenfold to over $8 billion. In the payments sector, revenues have expanded around 2.5x, with significant margin improvement driven by industry tailwinds and the strategic elimination of unprofitable lines.

Over the past two years, Paytm has achieved threefold revenue growth, with gross margins increasing to 54% from 13%. The company is now on a trajectory towards profitability, a transition that Jefferies expects to continue. They forecast rapid revenue growth (31% CAGR over FY23-26E), driven by a 55% CAGR in financial services revenues, led by a fourfold increase in credit originations, and a 50% CAGR in merchant subscription revenues. Paytm’s assertive market leadership is bolstered by aggressive network expansion and the deployment of merchant devices.

Strong Path to Profitability

Jefferies predicts that contribution profits will outpace revenues, with margins improving by 300 bps to 57%. This improvement will be driven by a rising share of financial services in the revenue mix and better core payments margins as the share of credit-linked spends in non-UPI GMV increases.

Paytm’s journey towards profitability and global recognition in the fintech sector has positioned it as a strong candidate for investment, despite its share price not yet reflecting its full potential.

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