Paytm Gets Target Price Upgrade From Citi After Zomato Deal
The deal has been at 5 times of the estimated enterprise value-to-sales ratio of the next fiscal, compared to its older target price which had factored in 2 times of the ratio.
One97 Communications Ltd.'s target price has been hiked by Citi Research as it sees the sale of Paytm's entertainment ticketing business to Zomato Ltd. as a positive for the company.
The brokerage raised the target price of the stock to Rs 440 per share, compared to Rs 410 apiece earlier after factoring in the deal. This, however, still implies a downside of 20%.
The deal-value is higher than the implied value for this business in the brokerage's older target price, Citi said.
Zomato buying Paytm's Insider and Ticketnew business has been at 5 times of the estimated enterprise value-to-sales ratio of the next fiscal, compared to its older target price which had factored in 2 times of the ratio.
This was despite the impact on growth in the entertainment ticketing businesses from losses in Paytm’s monthly transacting users since RBI action in February, the research firm said.
Paytm's ongoing transformation into pure-distribution business model for payments and financial services is positive, Citi said, even as it continues to retain travel ticketing sub-segment within commerce and cloud. The digital payments platform saw saw strong growth in the flights segment at 19% on annual basis in the June quarter.
These positives, however, did not lead the brokerage to revise its 'sell' rating. It will watch for key outstanding regulatory bottlenecks to resolve first, including NPCI greenlight to new UPI customer acquisition and government FDI approval for payment aggregator licence.
"Paytm’s latest app traffic and UPI GMV trends in our monthly traffic note clear bottom out although recovery is slow, likely given NPCI hold on new user acquisitions for UPI," it said.
If the company gets the government's FDI approval, it pushes the payment aggregator licence application back to RBI, the brokerage noted.
"If/when RBI approves the licence, Paytm can resume onboarding new online merchants for its payment gateway/aggregator business after nearly two years," it said. "More importantly, the approval from the government removes a key perceived overhang stemming from Ant Financial's direct + indirect economic interest in the company."
The stock was back in the green after ending lower on Thursday, when it had hit its highest since Feb. 1.
Before Thursday's fall, it had added 13.4% in its five session rally from Aug. 14.
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On Friday, shares of the company rose as much as 1.77% before paring gains to trade 0.7% higher at Rs 557.80 apiece, as of 9:30 a.m. This compares to a 0.08% advance in the NSE Nifty 50.
The stock has fallen 12.4% year-to-date and 34.85% in the last 12 months. Total traded volume so far in the day stood at 0.19 times its 30-day average. The relative strength index was at 64.72.
Out of 17 analysts tracking the company, four maintain a 'buy' rating, six recommend a 'hold' and seven suggest 'sell', according to Bloomberg data. The average 12-month analysts' consensus price target implies a downside of 20.8%.
