Target: ₹1,450
CMP: ₹1,286.35
Our positive stance on One 97 Communications (Paytm) remains intact on the back of its significant earnings growth potential, stemming from: likely growth in payments and loan distribution; margin expansion prospects from a combination of product upgrades, improving UPI mix towards chargeable products, savings initiatives and operating leverage; and presence of optionality through possible offerings, including traction in postpaid/wallet/international complemented by its diverse presence across the payment ecosystem. Given these levers, we consider risk-reward as favourable.
There is also better success now in terms of product innovations, customer/merchant retention and free cash flow maximisation.
We arrive at PAT (including ESOPs) of ₹610 crore/₹1,530 crore/₹2,230 crore in FY26/27/28E. FY26E PAT includes one-time impairment of INR 1.9bn of loan to First Games Technology Pvt. Ltd. done in Q2FY26 and impairment of ₹17 crore done in Q1FY26. Adjusted for these, FY26E PAT stands at ₹820 crore.
We now value Paytm basis 40x multiple as we roll forward to FY28E EBITDA of ₹2,150 crore. We add cash of ₹13,000 crore and arrive at a TP of ₹1,450 (earlier ₹1,240) basis diluted shares of 67.8mn.
Risks: Less-than-expected growth in GMV (factoring in FY25–28E GMV CAGR of about 23 per cent) and financial services revenue (baking in FY25–28E CAGR of 25.8 per cent).