Paytm Shares Surge Over 3% as UBS Initiates Coverage with ‘Buy’ Rating

Paytm Shares Surge Over 3% as UBS Initiates Coverage with 'Buy' Rating

VoM News Desk | January 16, 2024 | 11:40 AM IST | Breaking News | Follow on Google News

Paytm Shares Surge Over 3% as UBS Initiates Coverage with ‘Buy’ Rating

Paytm Shares Surge Over 3% as UBS Initiates Coverage with ‘Buy’ Rating

Paytm’s share price traded over 3% higher on Tuesday as global brokerage firm UBS initiated coverage on the stock. Paytm shares gained as much as 3.73%, reaching ₹742.20 apiece on the BSE.

UBS expects One 97 Communications, Paytm’s parent company, to break even on EBITDA in FY25 and reach a 20% EBITDA margin by FY28. The brokerage views this as a key re-rating trigger, similar to other new-age companies like Zomato, where investors value profitable growth more than pure growth.

Initiating coverage with a ‘Buy’ rating, UBS set a target price of ₹900 per share, implying an upside of 25.8% from Monday’s closing price.

The brokerage expects Paytm’s EBITDA margin to gradually reach 20% by FY28. It notes that Paytm’s profitability has progressed, with the contribution margin improving to around 55% of revenue in FY24, and EBITDA (excluding ESOP costs) turning positive. The improvement is attributed to the deceleration in payment processing fees growth, improving payment margin, and reduced marketing-related costs.

UBS forecasts Paytm to break even in EBITDA in FY25, aided by operating leverage and declining ESOP costs. The brokerage believes the market is overestimating the marketing cost requirements, given that Paytm’s customer acquisitions have largely been completed. UBS’ FY26-28 EBITDA estimates are 8-14% above consensus.

Moreover, UBS sees Paytm shares trading at a discount to global peers, with the stock at 18x FY26E EV/EBITDA and FY26E 2.2x EV/net sales. The brokerage values Paytm’s core business on DCF and considers EBITDA break-even and growth thereafter as key re-rating triggers.

Paytm shares have rallied over 22% in the past month and more than 34% in the last year. At 11:15 am, Paytm shares were trading 3.61% higher at ₹741.30 apiece on the BSE.

VoM News Desk

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