Goldman Sachs gives a buy call on Paytm after Q3 loss widens but others say nay

Brokerage houses are split on their opinion about the business prospects and valuations of One97 Communications Ltd after the parent of digital payments venture Paytm declared its results for the third quarter ended December 31.

The company, which went public last year, posted a net loss of Rs 778.4 crore for the quarter compared with a loss of Rs 535 crore in the year-ago period.

The biggest jump in expenses came from employee expenses, which more than doubled to Rs 831.3 crore. The firm said that, excluding the ESOP-related costs, the EBITDA loss narrowed to Rs 393 crore from Rs 488 crore in the same period the previous year.

The company’s revenue, meanwhile, rose 89% to Rs 1,496 crore during the quarter. Strong growth in income was driven by an increase in merchant payments processed through MDR bearing instruments (Paytm Wallet, Paytm bank account, other banks’ internet banking, debit and credit cards), disbursements of loans on platform and recovery of commerce business from Covid-19 impact.

Revenue from payment services to consumers was up 60% year on year to Rs 406 crore. Revenue from payment services to merchants shot up 117% to Rs 586 crore while revenue from financial services including lending tripled to Rs 125 core and from commerce and cloud services rose 64% to Rs 339 crore.

Monthly Transacting Users (MTU), or the number of unique users with at least one successful payments transaction in a month, has grown 37% from a year earlier to 64.4 million in the third quarter.

Meanwhile, promotional cashbacks rose just 6% to Rs 116.6 crore but marketing expenses shot up 64% to Rs 166.5 crore year-on-year.

Split house

Paytm’s financials have left analysts with various brokerages split on what to make of the numbers and how should one value the company and its shares. Shares of Paytm rose 0.44% on Monday to close at Rs 957.40 apiece.

Macquarie, the Australian financial services firm, has put a price target of Rs 700 a share. Macquarie was the first to show a thumbs down to the company after it listed. It had initially given an underperform rating to Paytm and put a price target of Rs 1,200 against the issue price of Rs 2,150 a share. It had later cut the target further to Rs 900 apiece.

Macquarie has pointed out that ESOP expenses cannot be seen as a one-off expense and that it will be recurring cost.

JP Morgan has also reduced its price target from Rs 1,850 a share to Rs 1,350 after baking in higher cost of equity due to ESOPs.

Morgan Stanley retained an overweight rating but has cut its base case target price to Rs 1,425 per share, from Rs 1,875 earlier.

But not everyone has a negative view on the company. Yes Securities has upgraded the stock from sell to reduce and Goldman Sachs has upgraded its rating on Paytm shares to buy from neutral even as it has reduced its target price on the stock to Rs 1,460 from Rs 1,600.

Goldman Sachs was positive on the better-than-expected take rate, market share gains in payments vertical, strong traction in lending, good performance of loan portfolio and improvement in risk-reward ratio.

It added that Paytm is trading at around a 10% discount to global fintech peers even though its revenue growth is higher than them.