Shares of One97 Communications Ltd, the operator of payments platform Paytm, will rally another 21 percent as a constant improvement in contribution margin and operating leverage will continue to drive Paytm's operating profitability, believe analysts at domestic brokerage Motilal Oswal Securities.

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Motilal said that Paytm is on track to report Ebitda breakeven in the second half of financial year 2024-25 (2HFY25) after reporting adjusted Ebitda breakeven, almost a year ahead of its guidance.

After having been marked as one of the worst wealth eroders on Dalal Street since its listing in November 2021, shares of Paytm have been on a bull run after they hit their 52-week lows of Rs 439.60 on November 24 last year. In a little over seven months, the share price has gained 94 percent and it has risen 60 percent on a year-to-date basis.

Paytm's stock has been rising on improving business prospects and recent 'buy' ratings by a host of brokerages. Shares of One 97 Communications (Paytm) were trading 2 percent lower during Monday's morning deals. Motilal believes the stock can rise even further and can go up to Rs 1,050.

The stock of Paytm has delivered healthy returns of 34 percent, since Motilal Oswal initiated coverage on the counter in April 2023. The lending business has demonstrated robust traction in loan disbursals with the total number of loans disbursed surging 4.6 times year-on-year in FY23 (4.4 times in FY22).

The brokerage said that the business momentum also remains robust with gross merchandise value (GMV) growing 35 percent on-year to Rs 2.65 lakh crore during April-May (55 per cent on-year growth in FY23).

Motilal has raised its FY25 GMV and disbursement estimates by 5 percent and 21 percent. The brokerage expects the mix of financial revenue to increase to 32 percent by FY25E from 19 per cent in FY23.

The brokerage also estimates the company's revenue or contribution profit to register a CAGR (compound annual growth rate) of 31 percent or 36 percent over FY23-28, while Adjusted EBITDA or EBITDA margin improves to 13 percent or 5.9 percent, respectively, by FY25.

In March 2023, Paytm was granted an extension by the RBI for its payment aggregator license application. As a result, Paytm can continue offering all payment services to its existing customers. However, during this period, it cannot onboard new online merchants. Furthermore, the company is currently awaiting regulatory approvals to onboard new customers for Paytm Payments Bank, Motilal said.

The brokerage added that any pending approvals to Paytm, which is the largest listed Fintech, will further endorse faith in its business operations and augment growth opportunities.

Key risks, as per Motilal, may include the ability to maintain strong portfolio quality amid rapid disbursement growth, supply overhang from some of the large shareholders, and evolving regulatory environment adversely affecting Fintechs.

(Edited by : C H Unnikrishnan)

First Published:Jul 3, 2023 11:55 AM IST