Macquarie hikes Paytm target price by 64% to ₹2,025
Macquarie upgrades Paytm to 'Outperform' with a 64% target price hike, naming it a top fintech pick due to strong revenue and margin growth.
In a massive boost for the fintech giant, global brokerage Macquarie has significantly raised its target price for Paytm, jumping 64% to ₹2,025 from the previous ₹1,235. The brokerage has also upgraded the stock's rating from ‘Neutral’ to ‘Outperform’, officially naming Paytm its top pick in the fintech sector.
This aggressive revision comes as Macquarie identifies several key pillars of strength within the company, including robust revenue growth, enhanced cross-selling capabilities, and a disciplined approach to cost management. According to the brokerage, these elements are set to drive a much sharper trajectory for the company's profit margins.
The MDR Advantage and Revenue Surge
A central driver behind this optimistic outlook is the recent Merchant Discount Rate (MDR) notification. Macquarie estimates that this development presents a massive ₹10 billion (approximately ₹1,000 crore) revenue opportunity for Paytm. Crucially, this revenue is expected to come with limited incremental costs, which will translate into high EBITDA conversion.
By factoring in the potential revenue from select UPI transactions linked to MDR, the brokerage has significantly revised its financial projections:
- Earnings Per Share (EPS): The FY28 EPS estimate has been hiked by 44% to ₹45.0, up from ₹31.2. The estimate for FY29 stands at ₹55.8.
- EBITDA Margins: Margin estimates for both FY28 and FY29 have been lifted by 600 basis points.
- Profit After Tax (PAT): Macquarie forecasts a PAT of ₹28.7 billion in FY28 and ₹35.6 billion in FY29, which is notably higher than current market consensus estimates.
Growth Projections and Market Upside
The new target price of ₹2,025 implies a potential upside of 23% from Paytm’s market price of ₹1,647 (as recorded on September 25). The valuation is based on 45 times the estimated earnings for FY28.
The brokerage's analysis suggests a period of explosive growth for the company. Paytm's EPS is projected to grow by 144% in FY27 and 113% in FY28. Furthermore, the company's return on equity is expected to climb from 15.1% in FY28 to 16.0% in FY29. Overall, Macquarie's estimates point toward a compound annual growth rate (CAGR) in profit after tax of approximately 62% between FY27 and FY29.
The substantial jump in the target price is attributed to two main factors: the significant increase in earnings, bolstered by MDR revenues, and the rolling forward of the valuation to the FY28 period.