Citi has reiterated its ‘Buy’ rating on Paytm, with a target price of ₹900, reflecting a slight upside from the current market price (CMP) of ₹894.00. The brokerage noted a strong improvement in Paytm’s Q3FY25 adjusted EBITDA performance, driven by cost efficiencies, despite some moderation in margins.

Key Highlights:

  1. Q3FY25 Performance:
    • Adjusted EBITDA losses narrowed significantly to -₹0.4 billion from -₹1.9 billion in Q2FY25, exceeding Citi’s estimate of -₹1 billion.
    • The positive surprise was largely due to lower corporate overheads, which declined 7% QoQ and 23% YoY.
  2. Margins:
    • Net Payment Margins came in at 9.7bps, a decline of 70bps QoQ.
    • Contribution Margins stood at 52.5%, down 140bps QoQ, falling slightly below expectations.
  3. User Metrics:
    • Consumer Monthly Transacting Users (MTUs) saw a sharp increase, rising 4% MoM to reach 72 million in December 2024, indicating strong user engagement.
  4. Merchant Business Growth:
    • Paytm’s merchant business, including devices and DLG loans, continued to demonstrate robust growth and high stickiness, reflecting confidence in the company’s product ecosystem.
  5. Profitability Outlook:
    • Paytm appears to be on track to achieve adjusted EBITDA break-even, excluding UPI incentives, by Q4FY25, which would mark a significant milestone for the company.

Citi’s Take:

Citi remains optimistic about Paytm’s growth trajectory, driven by operational efficiencies and steady progress in its merchant business. Despite some margin softness, the company’s focus on cost control and user engagement bolsters its long-term outlook.

CMP and Target:

  • Current Market Price (CMP): ₹894.00
  • Target Price (TP): ₹900
  • Upside Potential: Marginal

Conclusion:

Paytm’s improved profitability metrics and robust growth in key segments highlight its potential to achieve sustainable financial performance. While the upside to Citi’s target is limited, the stock remains a buy for its long-term growth prospects.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should consult their financial advisors before making investment decisions.

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