Paytm's customer and merchant base underpin long-term profitability: Citi

What happened

Citi reiterated its Buy rating on One 97 Communications, which operates Paytm, and raised its target price to ₹1,940 from ₹1,560. Citi said Paytm's large customer and merchant base and high repeat usage support long-term profitability potential.

Confirmed

Global impact / market context

A higher target price from Citi signals the brokerage expects Paytm's earnings to improve. Its large base of customers and merchants, plus repeat usage, gives Paytm a head start in selling other financial services such as loan distribution and credit cards.

Analyst inference

Citi sees financial services growth and improving payment margins supporting Paytm's earnings even before any benefit from a UPI merchant discount rate, which is a fee merchants pay on digital payments. The note followed Paytm's September quarter results.

Analyst inference

What to watch

1. Citi's target price for One 97 Communications is ₹1,940, up from ₹1,560, with a Buy rating maintained in its October 27 note following the September quarter results. Confirmed
2. Citi points to existing and emerging ways to keep users coming back to the platform, such as consumer offerings and brand recognition, which the brokerage says can strengthen stickiness. Proposed
3. Watch whether Paytm converts its large customer and merchant base into growth in loan distribution and credit cards, and whether payment margins improve before any UPI merchant discount rate benefit arrives. Analyst inference

Evidence

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