Paytm share price climbs 6% in intra-day deals, rallies 19% over 5 consecutive sessions

Stock Market Today: Shares of One97 Communications, the parent company of Paytm, surged over 6 per cent on November 22, marking the fifth consecutive trading session of gains. The rally was fueled by a positive outlook from global brokerage firm Bernstein, which recently reaffirmed its bullish stance on the fintech player, projecting strong earnings growth under favourable conditions.

Bernstein upgraded its target price for Paytm to ₹1,000 (18 per cent upside) per share, up from ₹750 earlier, while maintaining its ‘Outperform’ rating. The brokerage highlighted a shift in discussions around Paytm—from concerns about its survival to an analysis of growth opportunities.

In a bull-case scenario, Bernstein expects Paytm to expand its lending operations and improve payment margins, potentially doubling its base-case earnings per share (EPS) estimates. The brokerage highlighted several growth drivers that could propel Paytm’s profitability, including a recovery in payment margins, regulatory changes, and the company's lending strategy.

Key Growth Drivers

Payment Margins Recovery: Currently, Paytm’s payment margins stand at 10 basis points (bps) due to regulatory pressures. Bernstein predicts a recovery to 15 bps, driven by the increasing popularity of products like wallets and credit-linked UPI. This margin expansion alone could add 25 per cent to the company’s EPS.

Regulatory Tailwinds: The brokerage noted that regulatory measures aimed at limiting the market dominance of competitors like PhonePe and Google Pay could help Paytm reclaim a greater share of UPI transactions. Bernstein estimates that this shift could contribute an additional 8 per cent to Paytm’s EPS, alongside a 25 per cent compound annual growth rate (CAGR) in gross merchandise value (GMV) through FY30.

Lending Expansion: A significant opportunity lies in lending, where Paytm could improve profitability by channelling loans through its balance sheet, supported by an NBFC license. This strategy could reduce regulatory risks and boost EPS by 30 per cent. However, Bernstein cautioned that the success of this approach depends on regulatory developments and the company’s willingness to expand its lending operations.

Bear Case Risks

While the bull case outlines a promising future, Bernstein also highlighted risks under a bear-case scenario. These include sustained pressure on payment margins and slower loan disbursal growth, which could result in a 40 per cent downside to the base case estimates.

Recent Developments Support Sentiment

The positive sentiment surrounding Paytm has been strengthened by recent regulatory developments. The National Payments Corporation of India (NPCI) allowed the company to onboard new UPI users after nearly nine months of restrictions imposed by the Reserve Bank of India (RBI).

Additionally, Paytm posted a net profit of ₹930 crore in Q2FY25, a significant improvement from the ₹290.5 crore net loss recorded during the same period last year. However, this turnaround was largely driven by a one-time gain of ₹1,345 crore from the sale of its movie ticketing business to Zomato.

Stock Price Performance

Paytm’s stock rose 6.2 per cent to ₹897.90 on November 22, extending its rally to the fifth straight session. Over these sessions, the stock has gained more than 19 per cent. Despite shedding over 7 per cent last year, the stock has surged over 41 per cent in 2024 so far.

November has been particularly strong for Paytm, with the stock climbing over 16 per cent so far. This marks the sixth consecutive month of gains, building on increases of 10.3 per cent in October, 10.6 per cent in September, 25.8 per cent in August, 23 per cent in July, and 11.4 per cent in June.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.