BofA Securities has given a buy rating on Paytm and has added the company to its list of top 10 short-term recommendations in the Asia Pacific for Q1 2024. “We have a Buy rating on Paytm. We are optimistic on fundamentals and see room for Paytm to scale up aggressively without taking any balance sheet risks. Paytm has key differentiating factors versus peers,” it said.
The global brokerage firm further noted that Paytm along with other 9 companies could have the most significant market, business-related catalysts and will significantly outperform peers in Q1 2024. It also remarked that the lending business provides Paytm with upside potential. Its business model continues to perform well, and cross-selling aids in profitability.
The recent shift in strategy from low-ticket, low-margin to high-ticket, high-margin loans is seen as a positive development, and it does not alter the structure of Paytm’s margins improving due to a shift in revenue mix toward high-margin Soundbox and lending revenues. “In our view, the company may positively surprise with uptake of embedded insurance in coming months,” it added.
The research report further added, “We consider the change in strategy of re-calibrating postpaid loans a step in the right direction where the book is reset to pre-emptively control risks and subsequently focus in the high-take-rate, higher ticket size loan segment.”
Paytm is expected to be EBITDA breakeven in FY25. “We find Paytm competitively well placed to sustain its revenue momentum in the Soundbox market (targeting the SMEs small & medium-sized enterprises). Paytm charges Rs 100/month; visibility on subscription revenue is high. We expect EBIT margins to be 40% in steady state and expect payback on these boxes in 12-14 months,” BofA highlighted.