Investment Rationale
Customer acquisition engine to face stiff monetization pressure: Paytm’s payments ecosystem – with presence across merchants and customers – acts as a robust customer acquisition, engagement and retention engine giving multiple customer journeys and monetisation opportunities. However, rapid scale of UPI and competitors that are developing UPI-based use cases should significantly impact Paytm’s revenue growth for the payments business.
JM Financial forecasts GMV CAGR of 41.1 per cent, revenue CAGR of 36.1 per cent and GMV/MTU CAGR of 18.2 per cent over FY21-26E for Paytm. However, even with the brokerage’s robust growth expectations (which in turn are a function of its ability to fund MTU growth through cashback / discounts), and an EBITDA breakeven by FY27E, JM Financial finds valuations rich and the path to profitability fraught with high execution risks in context. Its target price of Rs 1,240 is based on 55x FY30E EV/EBITDA discounted back to FY24.
Financials
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