Paytm edges higher as Goldman Sachs raises target price; stock up 76% this year

Following a Goldman Sachs release, One 97 Communications Ltd, the parent company of Paytm, saw an increase in its stock price of almost 1% on October 16, 2023. Due to its potential to become the most profitable of India’s internet companies, the global investment banking behemoth increased the target price for the Noida-based payments startup. This action highlights both Goldman Sachs’ trust in Paytm and the hopeful future of fintech in India.

Credits: Money Control

Paytm: A Fintech Powerhouse

Paytm, founded by Vijay Shekhar Sharma, has emerged as a fintech powerhouse in India. It boasts industry-leading scale and engagement in the digital payments sector, making it a dominant player. The company’s success is deeply rooted in its ability to capture a substantial share of the Indian digital payments market.

Goldman Sachs’ Positive Outlook

Goldman Sachs analysts have expressed their bullish stance on Paytm, highlighting the company’s promising future. They believe that Paytm is well-positioned to capitalize on the growth in the digital payments industry in India, which has seen substantial expansion in recent years. This positive outlook is based on Paytm’s strong user engagement and market leadership.

Financial Projection: Net Income Positivity Expected in FY25

One of the key takeaways from Goldman Sachs’ analysis is the expectation that Paytm will achieve net income positivity in the fiscal year 2025. This is a significant milestone for any company, and for Paytm, it is likely to act as a catalyst for the stock. Becoming net income positive demonstrates financial stability and profitability, attracting both investors and consumers.

Challenges and Opportunities

Goldman Sachs is aware of the difficulties Paytm is experiencing, such as legal troubles, worries about the merchant discount rate (MDR), market share, and the rate of expansion of its financial services. Goldman Sachs thinks that Paytm’s current stock price is favorable considering its growth possibilities despite these challenges.

Attractive Valuation

Paytm’s stock is currently trading at the lower/mid end of India’s internet peers when considering the price-to-earnings (P/E) ratio for the fiscal year 2026. This valuation is considered attractive given the company’s growth outlook and potential. Goldman Sachs expects continued momentum in Paytm’s lending and payments services, with a strong operating leverage in its business model. This indicates that the company is well-positioned to capitalize on the expanding fintech market.

Potential Catalysts for Paytm

Goldman Sachs sees several potential catalysts that could further drive Paytm’s growth and stock performance. These include:

1. Resolution of Regulatory Issues: The recent penalty imposed by the Reserve Bank of India (RBI) on Paytm Payments Bank for non-compliance with Know Your Customer (KYC) norms is a significant concern. The resolution of this regulatory issue is seen as a key catalyst for the Paytm stock. A resolution would remove uncertainty and facilitate business expansion.

2. Onboarding of a Bank as a Lending Partner: Collaborating with a bank as a lending partner can expand Paytm’s offerings and enhance its financial services, attracting more customers and generating additional revenue streams.

3. Expansion in Margins: If Paytm can increase its profit margins, it will not only demonstrate financial efficiency but also improve its attractiveness to investors.

4. Growth in Lending Business and Improved Credit Quality: Expanding the lending business while maintaining a high credit quality will contribute to the company’s long-term success.

Paytm’s Business Model

In recent quarters, Paytm has shown substantial progress by aggressively increasing cross-selling on its platform. This strategy has translated into improved profitability, demonstrating the company’s ability to monetize its user base effectively.

Revised Target Price

Goldman Sachs has revised its target price for Paytm’s stock to Rs 1,250 per share. This upward adjustment implies a potential 34% upside from the closing price on October 13. The new target price reflects the confidence that Goldman Sachs has in Paytm’s ability to deliver strong returns to its investors.

Current Market Performance

At 2:42 pm on October 16, Paytm was trading at Rs 935 on the National Stock Exchange (NSE), representing a 0.2% increase from the previous close. This relatively stable performance comes on the heels of the stock surging approximately 76% year-to-date.

Conclusion

The latest announcement by Goldman Sachs on Paytm’s target price increase highlights the enormous growth potential of India’s fintech industry. The major investment bank is impressed by Paytm’s dominant position in digital payments and its aggressive cross-selling expansion. Despite difficulties including regulatory worries and industry competition, the company’s price is nevertheless appealing.