Key Points
- Citi upgraded Paytm to “buy” from “sell”.
- Price target raised to ₹900 from ₹440.
- 22% potential increase from current levels.
- Most regulatory issues are now resolved.
- Default Loss Guarantees for merchant loans announced.
- Paytm’s share price went up 7.5% to ₹738.2.
- Citi’s target is 58% below Paytm’s IPO price of ₹2,150.
Looma News
Citi has upgraded One97 Communications, the parent company of Paytm, to “buy” from its previous “sell” rating. They raised the price target for Paytm to ₹900, which is over 100% more than the old target of ₹440. This suggests a potential increase of 22% based on the closing price from Wednesday.
Citi noted that most regulatory issues for Paytm seem to be resolved now. The company has also announced plans for Default Loss Guarantees (DLG) to comply with RBI rules for its merchant loan partners. Furthermore, Paytm has received the go-ahead from the National Payments Council of India (NPCI) to bring on new UPI users after a nine-month pause from the Reserve Bank of India.
Paytm has successfully moved 13.5 crore UPI customers to its TPAP app. The company has also set aside up to ₹225 crore as a Default Loss Guarantee for loans handled by its partners, creating a future financial obligation of that amount.
Citi found that Paytm’s revenue for the September quarter met expectations, but a big drop in operating costs led to much better-than-expected adjusted EBITDA. Because of this, Citi has upped its earnings forecasts and adjusted its target multiple to 42 times Enterprise Value to Adjusted EBITDA.
Another brokerage, Jefferies, has kept its “hold” rating on Paytm with a price target of ₹700. Jefferies mentioned that risks around Paytm have significantly decreased after NPCI’s approval but chose not to upgrade, saying that current valuations show short-term optimism.
Out of the 18 analysts covering Paytm, seven say “buy,” six say “hold,” and five say “sell.” After the upgrade, Paytm shares ended 7.5% higher at ₹738.2, but Citi’s new price target is still 58% below the IPO price of ₹2,150, and the current share price is 65% below that original price.
