Paytm Surges 5% Following RBI Announcement, Bolstered by Morgan Stanley’s ‘Equal-Weight’ Rating
Following RBI’s action on its payments bank business, One97 Communications established an advisory committee, which is still in the process of engaging more deeply with the company to identify any issues.
On February 26, Paytm’s stock continued its upward momentum from the previous week, reaching a 5 percent upper circuit. This surge occurred as Morgan Stanley reaffirmed an equal-weight rating on the stock, setting a target price of Rs 555 per share. As of 9:18 am, the stock was trading at Rs 426.60 on the NSE.
Following the Reserve Bank of India’s (RBI) guidance, the National Payments Corporation of India (NPCI) has been directed to review Paytm’s request to serve as a third-party application provider (TPAP).
Should the NPCI grant approval, this action would guarantee uninterrupted UPI services for Paytm’s clientele.
Additionally, the central bank suggested that if NPCI were to authorize parent company One97 Communications as a TPAP, it could be mandated that ‘@paytm’ handles be smoothly transitioned from Paytm Payments Bank to a designated group of newly identified banks to prevent any interruptions.
Now, investors are anticipating the response from NPCI and eagerly awaiting further updates from Paytm regarding the potential impact on its business in February 2024.
On February 25, M Damodaran, the head of the panel and former chairman of Sebi, stated that the advisory committee, established by One97 Communications following RBI’s action on its payments bank business, has not yet engaged extensively with the company to pinpoint any issues.
Responding to a query regarding the effect of RBI’s January 31 order on Paytm Payments Banks Limited (PPBL), Damodaran stated, “We serve as external advisers. Currently, Paytm is in communication with the RBI.”
Following RBI’s crackdown on PPBL on January 31, Paytm’s stock experienced a decline, plummeting approximately 60 percent. However, it later showed signs of recovery, surging to hit the 5 percent upper circuit on four occasions during the previous week.
Despite Paytm recovering from its losses and currently trading 27 percent higher than the 52-week low of Rs 318 recorded on February 16, the fintech stock remains 46 percent below the closing price of Rs 761.20 on January 31.
During the past week, Goldman Sachs issued a ‘neutral’ rating on the stock and revised its target price downward to Rs 450 from the previous Rs 860 per share. This adjustment is indicative of the potential decline in market share within the payments sector.
Moreover, Goldman Sachs foresees a decrease in lending activity in the short run, attributed to a recent directive from the RBI imposing stringent restrictions on Paytm Payments Bank (PPBL).
As a result, analysts at Goldman Sachs have revised down revenue and adjusted EBITDA estimates for FY24E-26 by as much as 36 percent and 80 percent, respectively. Their current outlook anticipates a 21 percent year-on-year decrease in FY25 revenues, contrasting with the earlier forecast of a 16 percent growth.
Despite multiple brokerages downgrading Paytm stock following the RBI action, with Jefferies even shifting it to its list of ‘Non Rated’ stocks, Bernstein maintains a bullish outlook on the stock.
The brokerage stated, “Considering the current undervaluation and the resolution of a significant regulatory concern, we perceive substantial upside potential and uphold our Outperform rating with a target price of Rs 600.” Additionally, they emphasized that the regulatory measures are confined to Paytm Payments Bank (PPBL).
Bernstein analysts anticipate that Paytm will effectively implement operational adjustments necessary to reduce reliance on PPBL, expecting minimal long-term repercussions on their overall business.
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