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Raising GMV & Disbursement projections by 4-21%

On track to achieve EBITDA breakeven in 2HFY25; reiterate Buy

* Paytm’s stock has delivered healthy returns of 34%, since we initiated coverage in Apr’23. The lending business has demonstrated robust traction in loan disbursals with the total number of loans disbursed surging 4.6x YoY in FY23 (4.4x in FY22).

* Business momentum remains robust with gross merchandise value (GMV) growing 35% YoY to INR2.65t during Apr-May’23 (55% YoY growth in FY23).

* The company maintains quarterly merchant addition run-rate of 1m+ with the total number of devices deployed surging to 7.5m in May’23 (118% YoY growth). The sustained growth in the deployment of devices will enable robust transaction volumes and drive healthy growth in merchant and consumer loans.

* We note that from an annualized 1QFY23 run-rate of INR222b value of loans, the company has reached an annualized run-rate of ~INR600b in Apr-May’23, and the same is tracking higher than our estimates. Merchant loans also improved in May’23 after a drag in Apr’23, due to technology system upgrade at one of the leading partners.

* We believe that after reporting adjusted EBITDA breakeven in 3QFY23, almost a year ahead of its guidance, Paytm is on track to report EBITDA breakeven in 2HFY25. We raise our FY25E GMV and Disbursement estimates by 5% and 21%, respectively, and estimate the mix of Financial revenue to increase to 32% by FY25 from 19% in FY23.

* We estimate adjusted EBITDA, EBITDA, and Contribution margin of 13%, 5.9%, and ~56% by FY25. We thus revise our TP to INR1,050, based on a FY28E EV/EBITDA multiple of 16x (implied 4.7x FY25E P/Sales). We reiterate our BUY rating on the stock.

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