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Should you buy or sell Paytm shares? Brokerages are divided, too

by 5paisa Research Team 02/12/2021

It would be an understatement to say that it has been a rough couple of weeks for Vijay Shekhar Sharma’s Paytm at the hustings. 

After dropping 27% on its stock market debut, the counter has struggled to even come close to its IPO price of Rs 2,150 apiece, leaving investors, quite literally, red-faced. 

But now it appears, analysts are divided on what investors should do, going forward. 

After Macquarie gave the fintech stock a thumbs down, marking it at a target price of Rs 1,200 per share, brokerage house JM Financial too has given a ‘sell’ call on the counter, with a target price of Rs 1,240 per share. 

But it seems the stock, which has swung wildly since listing, is not without some fans, after all.

Dolat Capital Market Pvt Ltd, which is the third brokerage to initiate coverage on the stock, has become the first to give a ‘buy’ call on Paytm, with a target price at Rs 2,500 apiece. This is 16% higher than its listing price and 56% above its current market price of Rs 1,600 per share. 

So, what has JM Financial said?

JM Financial said that Paytm faces a “stiff challenge” in the core payments business, which will slow down its revenue growth. Also, scaling up of its related ecosystem businesses (commerce, cloud and financial services) leaves much to be desired, JM Financial said.

“In our view, Paytm will need to keep funding its ‘MTU’ growth and thus the road to profitability largely relies on the growth trajectory of other businesses,” it added.

And why does Dolat think otherwise?

Dolat said that while the entry multiple for Paytm does appear steep, “we see it as sustainable since it is the most impactful and real-economy internet business”.

Dolat’s analysts, led by Rahul Jain, said that Paytm’s app has emerged from a “want” category to reach to the “need” status.

This, Dolat thinks, positions Paytm as one of the “strongest digital brands to garner significant share of opportunities that will evolve in the Indian internet ecosystem”.

One97 Communications Ltd, Paytm’s parent company, raised $2.5 billion in its IPO but its debacle of a debut made it one of the worst initial showings by a major technology firm since the dotcom bubble era of the late 1990s.

Who are Paytm’s top investors?

Paytm has the backing of top global investors, including Masayoshi Son’s SoftBank Group Corp, Warren Buffett’s Berkshire Hathaway Inc. and Jack Ma’s Ant Group.

How did Paytm’s latest financial results look?

Paytm reported its first financial results as a public company over the weekend, with losses widening to Rs 474 crore in the July-September quarter from a year earlier amid rising expenses. Its revenue rose more than 60%, boosted by strong growth in its financial, commerce and cloud services.

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