Shares of One97 Communications (OCL), which provides financial services under the brand ‘Paytm’, and has a banking arm Paytm Payments Bank (PPBL), hit the 5 per cent upper circuit at Rs 428.10 on the National Stock Exchange (NSE) in Monday’s (February 26) intraday trade.
Photograph: Shailesh Andrade/Reuters
The up move in the stock on Monday came after the Reserve Bank of India (RBI) asked the National Payments Corporation of India (NPCI), in post stock market hours, to look into the possibility of migrating PPBL customers, using the UPI handle ‘@paytm’, to four-to-five other banks.
This move, most analysts believe, will smoothen the transition out of PPBL to other partners.
While the objective could be to limit inconvenience to users, PayTM would see a minimal limited volume loss.
According to analysts at Morgan Stanley, PhonePe and Google Pay together had 84 per cent market share of UPI as of December 2023, with PPBL having 11 per cent share (total UPI including P2P value market share).
Users who have a PPBL bank account linked to their UPI (around 10 per cent of Paytm user base, per press report), their analysts said, will need to move to a different bank by March 15 to continue using services.
At the bourses, meanwhile, Paytm has bounced back 35 per cent from its record low of Rs 318.05 touched on February 16, 2024.
It had hit a 52-week high of Rs 998.30 on October 20, 2023.
Here’s how leading brokerages have interpreted the latest development.
Goldman Sachs
Target price (base case): Rs 450
Likely upside: 5.1%
Target price (bull case): Rs 750
Likely upside: 75.23%
RBI s clarification that @paytm UPI handles can be seamlessly migrated to other banks (if NPCI grants TPAP approval to Paytm) resolves a major unknown for the company.
If Paytm is able to smoothly transition a majority of UPI users, and resume lending products with limited disruption, we see an implied value per share of Rs 750.
However, we do expect some user and merchant share loss in the interim due to increased competitive intensity, and we note that visibility on ramp up of lending (including status of partners) remains low.
In our base case, we assume Paytm’s monthly transacting users (MTU) base declines to 80-85 million in FY25, versus around 100 million at present.
We are Neutral-rated on Paytm with 12-month target price of Rs 450.
Bernstein
Target price: Rs 600
Potential upside from CMP: 40%
The latest developments is a big positive for Paytm.
RBI solving for customer/ merchant convenience increases our conviction on the assumption of a smooth transition out of PPBL to other partners.
While the objective could be to limit inconvenience to users, the side-effect would be limited volume loss for Paytm.
One of the reasons for the announced steps is to ‘minimize concentration risk in UPI system by having multiple payment app providers’ – a recognition that should reduce questions on whether RBI’s original actions were against PPBL or Paytm app.
Morgan Stanley
Price target: Rs 555
Likely upside from CMP: 29.67%
RBI’s is a positive development.
We will closely watch NPCI’s response to the request and continue to await regulatory clarity from RBI and NPCI around PAYTM’s payment operations, updated commercials as PPBL’s business moves to other banks, and an update on the potential impact to PAYTM’s businesses during February 2024 amid the turmoil.
Approval from NPCI would ensure quick migration of PAYTM s UPI customers, resulting in limited disruption/challenges to its business operations/user engagement over the medium-term.
It will also limit the potential impact on PAYTM’s non-payment business operations.
Higher-than-expected competitive intensity in payment and/or reduction in payment charges, weak execution in financial services, and negative impact from changes to digital payment charges are the key risks.
On the other hand, better-than-expected execution on financial services, and allowance of merchant discount rate under UPI are the key triggers for an upside.
