Citi Remains Bullish On Paytm, Says Risks Are 'Overdone' Now

Brokerage firm Citi remains bullish on Paytm even as the stock continues to get hammered on stock exchanges.

Citi has given a 'Buy' rating for Paytm, with a target price of Rs 1,055.

Paytm lost 2.49 per cent at Rs 441.05 at the close of trading on BSE today.

According to a Bloomberg report, One 97 Communications, the operator of Paytm, has capped the worst first-year share plunge among large IPOs(Initial Public Offerings) over the past decade.

"The company, whose founder compared its challenges to those faced by Tesla Inc. shortly after the listing, has seen its stock erase 75 per cent of its market value one year after its $2.4 billion offering, the largest on record at the time in India. The dive is the steepest first-year slide globally among IPOs that raised at least the same amount since Spain's Bankia SA's 82 per cent drop in 2012...." The Bloomberg report said.

The Citi report came a day after Prosus, a global investment group, commented on its Indian payments business. Prosus said: "In India, our largest payments market, TPV (total payment value) grew 59 per cent to $28 billion, and revenue increased 48 per cent to $183 million, following increased digitalisation in e-commerce, financial services and bill payments, and a rebound in post-pandemic travel."

PayU is Prosus's fintech and payments arm.

Giving a comparison with PayU, Citi said Paytm has gained market share in digital payments vis-à-vis  PayU.

The growth appears comparable on a merchant discount rate (MDR)-generating total payment value (TPV) basis at 59 per cent for PayU vs 52 per cent for (Paytm) for the January-June period, Citi said.

In the buy-now-pay-later segment (BNPL) segment, Paytm is seeing faster growth in its active customer base compared to PayU's Lazypay.

Lazypay's reported loss-rate has increased by 30 basis points to 3.1 per cent compared to calendar year 2021, which is "something to watch out for the broader BNPL space in India," Citi said

Paytm has reported stable asset performance across its lending partners' portfolio with loss-rates of 1.1-1.3 per cent for BNPL products.

"We acknowledge overhang risks from further selling by existing pre-IPO shareholders and that fintech is a competitive space but at these valuations, those risks are overdone," Citi said.

"This stock is high-risk based upon our quantitative model, but its healthy net cash position and likely declining cash burn going forward do not support a high-risk rating," analysts at Citi said.