Jefferies has maintained a ‘Hold’ rating on Paytm, reducing its target price to ₹850, reflecting a potential downside of 4.9% from the current market price (CMP) of ₹894.00. While the company is nearing adjusted EBITDA break-even, Jefferies remains cautious about its valuation and growth prospects in the lending segment.
Key Highlights:
- Q3FY25 Performance:
- Adjusted EBITDA losses narrowed significantly to ₹0.4 billion, marking an 80% QoQ improvement.
- The improvement was driven by continued cost optimization (-7% QoQ) and a 7% increase in contribution profit.
- Lending Segment Growth:
- Paytm’s earnings recovery is now heavily reliant on the ramp-up of its lending segment, particularly under the Digital Lending Guarantee (DLG) model.
- A better macro environment for unsecured lending and improved asset quality could act as catalysts for upgrades in earnings projections.
- Valuation Concerns:
- Paytm currently trades at 3.8x FY27E EV/Sales, which Jefferies believes reflects the near-term optimism around its improved financial performance.
- The brokerage notes that sustained growth in the lending business will be crucial to justify these valuations.
Jefferies’ Perspective:
While Jefferies acknowledges Paytm’s progress toward profitability, it remains cautious about the challenges ahead in scaling its lending business and sustaining growth. The brokerage sees the stock’s current valuation as fair, given the optimism already priced in.
CMP and Target:
- Current Market Price (CMP): ₹894.00
- Target Price (TP): ₹850
- Downside Potential: 4.9%
Conclusion:
Jefferies maintains a neutral stance on Paytm, citing valuation concerns and reliance on the success of its lending segment. Investors may need to monitor the company’s execution in the lending space and its progress toward sustained profitability.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should consult their financial advisors before making investment decisions.