Paytm, Pine Labs shares down 22% MoM: Should you buy?
What's the story
Leading international brokerage firm Jefferies has maintained its 'Buy' rating on the stocks of One 97 Communications (Paytm's parent company) and Pine Labs. This comes despite a significant drop in their share prices over the past month, with declines of up to 22%. The firm has adjusted its target prices for both companies but continues to see a positive risk-reward ratio due to strong earnings growth forecasts and attractive valuations.
Growth prospects
Paytm's AI-based sound box launch could boost market share
Jefferies has noted that Paytm is capitalizing on its stronghold in merchant platforms for payments and loan origination. The firm also highlighted the limited impact of restrictions on RMG & rent/education payments made by credit cards. Paytm has recently launched an AI-based conversation sound box, which is being tested at 10,000 outlets. Jefferies expects this could help the company gain market share by keeping sound box pricing stable.
Financial outlook
Jefferies predicts 22% CAGR in Paytm's revenues
Jefferies predicts that Paytm will achieve a 22% CAGR in revenues between FY26-28, with its EBITDA margin expanding from 8.5% to 16%. The firm has lowered its target price for Paytm shares to ₹1,350 apiece from ₹1,400 earlier. The new target price suggests an upside potential of over 28% from the stock's last closing price on NSE.
Strategic growth
For Pine Labs, Jefferies sees revenue growth driving earnings
For Pine Labs, Jefferies has said that revenue growth and operating leverage will drive earnings. The firm expects improved working capital to enhance capital efficiency. Jefferies noted that Pine Labs is expanding its DCP network and witnessing growth in EMI on cards volumes. The company is also exploring tactical opportunities in gift card distribution and expanding through master franchises in the mid-market merchant segment.
Financial projection
Jefferies cuts target price for Pine Labs shares
Jefferies forecasts a 23% CAGR in revenues for Pine Labs from FY26-28, with an increase in adjusted EBITDA margin from 20% to 27%. The firm has cut its target price for Pine Labs shares to ₹260 apiece from ₹300 apiece. This new target price indicates an upside potential of over 58% from the stock's last closing price of ₹164.47 apiece on NSE.