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Wednesday, December 7, 2022

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Shares of One97 Communications, the parent company of Paytm, hit another all-time low on Thursday as pre-IPO investors continued to dump the fintech, sparking a sell-off.

The shares fell 2.5% to Rs 441 on the National Stock Exchange (NSE), about 80% less than its initial public offering issue price of Rs 2,150 and 2% less than Macquarie’s target price. Capital Securities of Rs 450.

With the latest drop in its share price, Paytm’s market capitalization has shrunk to around $3.5 billion for the first time. That is well below its $20 billion m-cap IPO and its last private valuation of $16 billion in November 2019.

Amid all this pessimism, Citi Research continues to give a ‘BUY’ rating for Paytm led by Vijay Shekhar Sharma, with a price target of ₹1,055, indicating a potential upside of 139% from current levels.

In the event of a bull market, Citi sees the shares at ₹1,230, suggesting a potential return of 179%. In a bearish scenario, he sees the stock at ₹605, a 37% upside potential.

“We recognize the risks of additional overselling by shareholders prior to the IPO and that fintech is a competitive space, but at these valuations, those risks are overstated,” the brokerage says.

“This stock is high risk based on our quant model, but its strong net cash position and likely decreased cash burn in the future do not support a high risk rating.”

Citi says Paytm’s lending business has been growing at a fast and steady pace, outperforming its competitors.

Paytm Postpaid, the fintech’s Buy Now Pay Later business, is way ahead of rival Lazypay, Citi says.

In its second-quarter earnings, Paytm said its postpaid business has more than 6 million users and is accepted by more than 15 million online and offline merchants as of the end of the second quarter of fiscal 23. The number of Disbursed postpaid loans grew 220% yoy in the second quarter of FY23, while the value of postpaid loans shot up 449% yoy to ₹4050 crore.

It’s not just about product growth, as Paytm’s BNPL product has better stable asset quality, the brokerage says. While Lazypay has reported a loss rate of around 3.1% year to date, an increase of 30bp compared to 2021, Paytm has reported a stable return on assets in its lending partners’ portfolio with rates loss of 1.1-1.3% for the postpaid BNPL product. says the report.

In addition, the average ticket size of personal loans available through the Paytm platform increased in the quarter ending September, indicating that the company’s loan distribution business in partnership with financial institutions is gaining momentum. every quarter, says Citi Research.

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