Brokerage firm Bank of America (BofA) reiterated its ‘Buy’ rating on Paytm’s stock and raised its target price to Rs 1,020, citing the company’s success with its payment confirmation device, Paytm Soundbox.
Paytm’s stock has rallied over 60% in the past six months to reach Rs 842, although it is still well below its initial public offering (IPO) issue price of Rs 2,150. BofA’s brokerage arm sees further potential, offering an upside of 16.8% and expected the share price to surpass the Rs 1,000 mark.
As the first company in India to widely deploy Soundboxes, Paytm has gained a significant advantage in this emerging market segment, according to BofA. The bank recognised Paytm’s first-mover advantage and expected the company to sustain its growth trajectory in the Soundbox segment.
“We expect the growth from the Soundbox segment to remain strong for the next 2-3 years with limited competitive risks. We also consider this business to be a high margin one and see room for surprise in consolidated EBITDA margin as this business gains scale,” BofA said in a statement.
The brokerage firm highlighted Paytm’s large merchant base in India and estimated that its target market for Soundboxes consists of approximately 25 million medium-sized SMEs and 15-17 million smaller SMEs. With an expected addition of 15 million devices in the next 2-3 years, Paytm is well-positioned to capitalise on this market opportunity, it affirmed.
The subscription-based revenue model for Soundbox device service, with a monthly charge of Rs 100, provides Paytm with high visibility and revenue stability, BofA added.
The firm expected stable EBIT margins of 40% and a payback period of 12-14 months for each Soundbox, with a capital expenditure of Rs 1,250 per box. The bank noted that Paytm’s market position has been minimally affected by key competitors in the Soundbox sector.
Furthermore, BofA anticipated that Paytm’s margin improvement would occur at a faster pace than initially expected, driven by the increasing contribution from high-margin businesses and cost-control initiatives.
Consequently, BofA has adjusted its earnings per share (EPS) estimates for fiscal years 2025 and 2026 to -3.86/5.29, leading to an increased valuation of Paytm’s discounted cash flows to Rs 1,024.
BofA has also raised the valuation multiples for payments and financial services to reflect the re-rating of similar companies globally and expected the gap to narrow for Paytm due to its improving business momentum.
