Paytm Share Price Jumps 8% Following Emkay’s Upgrade to ‘Buy’ and Higher Target Price

Introduction:

Shares of Paytm, the popular payment aggregator owned by means of One 97 Communications, skilled a pointy rally on Thursday, January 16, 2025, with the inventory surging by way of up to eight% to hit an intraday high of Rs 926.95 at the Bombay Stock Exchange (BSE). At the time of writing (10:forty nine AM), Paytm stocks were nonetheless buying and selling 7.24% better at Rs 920.40. This movement got here on the lower back of a bullish improve by way of domestic brokerage Emkay, which raised its score on the stock from ‘Add’ to ‘Buy’ whilst notably growing its target fee to Rs 1,050, up from Rs 750.

The target price of Rs 1,050 reflects a potential upside of 22.34% from Paytm’s previous close of Rs 858.25 per share on January 16. Emkay analysts, including Anand Dama, Nikhil Vaishnav, and Kunaal N, believe that Paytm is well-positioned for growth due to several positive developments, including a solid revenue trajectory, cost optimization initiatives, and the company’s improving financial health.

Key Factors Driving the Upgrade

Earnings Growth and Cost Optimization Emkay has upgraded its earnings projections for Paytm for the fiscal years 2026-2031, anticipating an increase of 20-40%. Analysts cite better revenue visibility, cost-efficiency measures, and Paytm’s focus on improving operational and financial efficiency. Emkay’s valuation approach, based on discounted cash flow (DCF) methods, led to the upward revision of the stock’s target price to Rs 1,050.

Paytm Stock Soars 8% After Emkay Upgrade: What’s Driving the Growth and What Investors Need to Know:

Strong Balance Sheet and Cash Reserves The upgrade also follows Paytm’s strategic stake sale in PayPay Corp, improving the company’s cash-to-market capitalization ratio to a healthy 21%, up from Zomato’s 5%. This strong cash position provides Paytm with a financial buffer, offering it flexibility for potential organic or inorganic growth opportunities. The robust balance sheet could also pave the way for shareholder-friendly actions, such as dividends or stock buybacks.

Regulatory Approval and Merchant Growth Analysts also highlighted the importance of Paytm’s progress in obtaining a payment aggregator license from the Reserve Bank of India (RBI). This approval is expected to facilitate the onboarding of new online merchants, driving strong growth in the company’s Gross Merchandise Value (GMV). The anticipated 32% GMV growth from FY25 to FY28 is further supported by Paytm’s ability to maintain a large and diverse merchant base,

with 42 million merchants as of September 2024. Additionally, the company has significantly increased its share of device merchants, which now accounts for 27% of its merchant base, up from just 4% three years ago. This shift is helping to boost subscription revenues, which have become an important revenue stream for Paytm.

Path to Profitability

Emkay analysts forecast that Paytm will turn profitable earlier than initially expected, projecting that the company will achieve a net profit by FY26E, ahead of the previously anticipated FY27E. This expected profitability is driven by increasing operational revenue, treasury income from the stake sale, and continued growth in Paytm’s diverse business segments.

Conclusion:

The upgrade from Emkay, combined with the strong performance in the stock, suggests that Paytm is on a solid growth trajectory. With improving fundamentals, a healthy cash position, and the potential for strong revenue growth across multiple business segments, Paytm’s outlook remains positive.

Investors now have a compelling reason to consider the stock, with an upside potential of over 22% from current levels, making it an attractive buy in the payment aggregator space.

FAQ:

1. Why did Paytm’s share price surge by 8% on January 16, 2025?

Paytm’s share price surged after Emkay, a leading domestic brokerage, upgraded the stock from ‘Add’ to ‘Buy’ and raised its target price to Rs 1,050 from Rs 750. The upgrade followed a positive outlook on Paytm’s future growth, driven by strong revenue potential, improved cost optimization, and a solid balance sheet bolstered by cash reserves.

2. What is Emkay’s new target price for Paytm, and what does it imply for investors?

Emkay has revised Paytm’s target price to Rs 1,050, up from Rs 750. This target price indicates a 22.34% potential upside from Paytm’s closing price of Rs 858.25 on January 16. This upgrade suggests strong growth potential for the company in the coming years, making it an attractive stock for investors looking for long-term gains.

3. What factors led Emkay to upgrade Paytm’s stock rating to ‘Buy’?

Several factors contributed to Emkay’s decision to upgrade Paytm’s stock:

  • Better Revenue Trajectory: Emkay anticipates strong earnings growth over the next several years, supported by cost optimization and an expanding customer base.
  • Improved Financial Position: Paytm’s recent stake sale in PayPay Corp has boosted its cash-to-market capitalization ratio, providing financial stability.
  • Merchant Growth: Paytm’s ability to retain and grow its merchant base, especially with the expected payment aggregator license from RBI, positions the company for substantial growth in GMV (Gross Merchandise Value).
  • Increased Financial Services: Growth in Paytm’s merchant loan business and higher take rates are helping offset declines in its payment-linked business, driving revenue growth.

4. How has Paytm’s cash position improved recently?

Paytm’s cash position has strengthened following the sale of its stake in PayPay Corp. This transaction increased Paytm’s cash-to-market capitalization ratio to 21%, a significant improvement from its earlier position of 5% (in comparison to Zomato’s 5%). This healthy cash reserve gives Paytm the flexibility for potential growth initiatives, acquisitions, or even shareholder rewards, such as dividends or stock buybacks.

5. What is the significance of Paytm receiving approval for a payment aggregator license from the RBI?

The approval for a payment aggregator license from the Reserve Bank of India (RBI) is a major positive development for Paytm. It will enable the company to onboard new online merchants more efficiently, driving further growth in its Gross Merchandise Value (GMV). The expected 32% GMV growth over FY25 to FY28 reflects this new growth opportunity, which analysts believe will be a key driver of Paytm’s long-term success.

6. How does Paytm plan to expand its customer base?

Paytm is working to recover its lost Monthly Transacting Users (MTU), aiming to return to its previous high of 100 million MTUs over the next 12-18 months. The company has already started this recovery following approval from the National Payments Corporation of India (NPCI) in October 2024. Expanding the MTU base will help improve merchant acceptance and create opportunities for Paytm to cross-sell its retail financial products, such as home loans, gold loans, insurance, and wealth management services.

7. When does Emkay expect Paytm to turn profitable?

Emkay analysts expect Paytm to turn net profit positive by FY26E, ahead of their earlier projection of FY27E. This is based on expectations of strong operational revenue growth, improving cost control, and increasing non-operational income, including treasury income from recent stake sales.

8. What are the key growth drivers for Paytm in the coming years?

Key growth drivers for Paytm include:

  • Expansion in Merchant Loans: Paytm’s growing merchant loan business is helping to drive financial services revenue.
  • Improved Operational Revenue: The company is seeing growth in areas like device merchant subscriptions, UPI credit card transactions, and merchant discount rate (MDR) revenue.
  • Regulatory Approvals: The payment aggregator license from the RBI will open up new opportunities in the online payments space.
  • Customer Base Growth: Rebuilding Paytm’s MTU base will drive both merchant acceptance and cross-selling opportunities for retail financial products.

9. Is Paytm a good investment opportunity right now?

With a strong balance sheet, expanding business lines, and an attractive target price suggesting a potential upside of 22.34%, Paytm presents a compelling investment opportunity for those looking to gain exposure to the digital payments and financial services sector. The recent stock rally and Emkay’s upgraded rating further support the bullish outlook on the company’s prospects.

10. How can investors benefit from Paytm’s future growth?

Investors can benefit from Paytm’s future growth by holding the stock as the company capitalizes on the expansion of its merchant base, growth in financial services, and recovery in its customer base. The company’s improving profitability, combined with potential shareholder rewards and a strong growth trajectory, makes it a stock worth watching in the coming months and years.

Disclaimer

The information provided on www.stockpulsdailynews.com is for informational purposes only and does not constitute financial advice. Stock trading is inherently risky, and users agree to assume full responsibility for their trading decisions, including any loss of capital. While we strive for accuracy, we do not guarantee the completeness or reliability of the information presented.

Users should conduct their own research and consult with a qualified financial advisor before making any investment decisions. www.stockpulsdailynews.com disclaims all warranties and is not liable for any damages arising from the use of this website. By using this site, you agree to these terms.

For any question, please contact us

Previous Article
Next Article

Leave a Reply

Your email address will not be published. Required fields are marked *

Share via
Copy link