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Paytm shares trade under pressure; JP Morgan sees 40% upside in fintech stock

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JPMorgan has initiated coverage on Paytm's and assigned an ‘overweight’ rating to its shares with a target price of Rs 1,850 per share for March 2023.

Paytm shares trade under pressure; JP Morgan sees 40% upside in fintech stock
Global brokerage JPMorgan has initiated coverage on Paytm's parent firm One 97 Communications and assigned an ‘overweight’ rating to its shares. The investor sentiment, however, remained negative on Tuesday on the Paytm stock even as the brokerage set a target price of Rs 1,850 per share for March 2023. A share of Paytm quoted at Rs 1,322.50 on NSE at 2.40 pm and the target price is nearly 40 percent from the current levels.
Paytm shares have declined 38.5 percent since the listing on November 18 at an issue price of Rs 2,150 apiece. JPMorgan acknowledged that the stock has been underperforming the Nifty sharply and trading at a discount to global and private peers.
However, in a note to its investors, the brokerage said, “We believe Paytm can deliver 60 percent revenue growth and 10x expansion in contribution profits over FY21-24, driving cash breakeven and positive free cash from FY25 onwards without draining much of the excess cash on balance sheet.”
JPMorgan research analysts view the digital payments platform firm as a one-of-a-kind “fintech horizontal” given its ability to drive monetization across categories and defray customer acquisition costs (CAC) across a range of products.
The brokerage believes, this is unlikely to be replicated by competitors and it expects Paytm to sharply beat consensus FY23/24 GMV/revenue growth expectations. It, however, sees credit loss in loan syndication business as a key risk for the company.
“Given the low ticket size nature of lending and an unseasoned book, a through-cycle credit loss in the portfolio is not yet established,” the note read.
JP Morgan is the second foreign brokerage after Morgan Stanley to have an overweight rating on the stock. Goldman Sachs has also initiated coverage on the stock but has a neutral rating on it.
Meanwhile, Dolat Capital gave Paytm shares a ‘buy’ rating in December. Macquarie Capital Securities and JM Financial Institutional Securities Ltd have given the stock ‘underperform’ and ‘sell’ ratings respectively.
For the past month, Paytm shares have wiped off more than 17 percent of investors’ wealth against the benchmark index BSE Sensex, which has gone up almost 5 percent.
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