Brokerage Initiates Coverage On Paytm, Sees More Pain Ahead

Paytm‘s share price was upbeat on Thursday going up over 1.5% to hit an intraday high of ₹348.55. The troubled fintech has had a terrible time at the bourses since the start of the year analysts at Emkay Global see the pain continuing.

The Paytm Analyst: Anand Dama-led analyst team at Emkay Global initiated coverage on the stock with a target price of ₹300. The target indicates an around 13% downside from the stock’s current levels of ₹340-₹345.

The Paytm Thesis: The brokerage said that Paytm emerged as a comprehensive payment and financial services entity with diverse revenue streams. However, recent regulatory challenges have hindered its progress, potentially delaying or altering its trajectory towards sustained profitability, the analysts added.

Paytm, including its subsidiary Paytm Payment Bank, has faced ongoing regulatory scrutiny, leading to the suspension of its payment bank operations. Consequently, the closure of its profitable wallet business and other services like FASTag followed suit.

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The brokerage also highlighted that the pending payment aggregator license restricts Paytm from onboarding new online merchants, constraining its gross merchandise value (GMV) growth.

Regulatory actions have also impacted its post-paid and personal loan distribution businesses, along with partner relationships reconsidering their alliances. The brokerage anticipates that the fintech giant would take some time to recover from the challenges and may even have to pivot towards a different business model.

The brokerage firm added that the path to profitability for Paytm has become challenging, primarily due to operational expenditure escalation in payments, the decline in financial services revenue, and risks associated with asset quality and partner relationships.

Business disruption is expected in FY25, with recovery potentially commencing thereafter, contingent upon the absence of further business or regulatory obstacles. Analysts at the brokerage said that they believe the fintech major can achieve EBITDA positivity only in FY28, while net profitability is expected by FY29.

Price Action: Paytm’s share price was up 0.98% to trade at ₹346.60 in early trade on Thursday.

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