Equity analyst Bernstein has set a target price of Rs 600 per share for Paytm, with a projection that the business, in its current format, would achieve profitability by 2026-27.It, however, said that the best scenario for the Noida-headquartered fintech would be an acquisition by a bank or a large non-banking finance company (NBFC).
Banks are trying to build consumer focused applications such as HDFC Bank’s PayZapp or ICICI Bank’s credit line on UPI (Unified Payments Interface) products. With Paytm they can get a quick boost in their customer base and offer superior products to them.
As a “middle path”, Bernstein suggested that if Paytm manages to attract a large investment for a sizable stake from a major corporate house, then there is a chance for the business to revive faster and also get some protection from future regulatory shocks.
Paytm was recently considering a stake sale to the Adani Group, according to some reports, but the company denied any such discussions.
One 97 Communications, which runs Paytm, was adversely impacted after its associate entity Paytm Payments Bank saw its business activities crippled earlier this year due to severe regulatory restrictions imposed by the central bank. Bernstein said the losses reported by the company were a direct result of the business impact on its banking operations.
Additionally, the government has cut down its budgetary allocations for digital payments, which is bound to impact Paytm’s revenue sources in the current fiscal, Bernstein observed.
ET wrote on July 25, that the government has reduced the budgetary allocation for digital payments to Rs 1,441 crore from Rs 3,500 crore announced in the interim budget in February.
Going solo
If Paytm goes solo, the company will need three major tailwinds to drive profitability faster, according to Bernstein. First, it will need a rapid scale-up of secured lending products, something that it has started offering now. Second, if it gets an 8-10 basis point share of the merchant discount rate on UPI payments above Rs 2,000, Paytm could become profitable by the third quarter of 2025-26. Finally, if it can cut costs faster and reduce its staff strength, there is a chance to break even quicker, said the report.
A basis point is a hundredth of a percentage point.
Acquisition by a bank or NBFC
If Paytm gets acquired by a bank or an NBFC, it will be the best outcome for the company, said Bernstein. Banks can use the Paytm user base to cross sell non-bank products, something they have been trying without much success. Besides, they can launch innovative credit products via payment channels like credit lines on UPI through Paytm’s distribution base.
In case an NBFC acquires Paytm, it can start offering smaller ticket loans, something which banks do not offer currently. However, Bernstein said this might not be the best time for any lender to enter the unsecured small ticket credit products segment.
Fund infusion from a corporate house
If Paytm gets a major investment from a large corporate house, it will get protection from regulatory shocks and in turn help the investor enter into the financial services sector, something that almost every large business is considering now.
From Reliance Jio to the Adani Group and the Tata Group, large firms are building fintech businesses in-house. Such efforts can get a major boost through the acquisition of Paytm, according to Bernstein.