Paytm hits 52-week high as Bernstein initiates coverage; pares gains later

Brokerage firm Bernstein has initiated coverage on the stock with an 'Outperform' rating and a target price of Rs 1,100

Shares of One97 Communications-owned Paytm gained 2.7 per cent and hit a fresh 52-week high of Rs 931 per share on the BSE in Thursday's intra-day trade after brokerage firm Bernstein initiated coverage on the stock with an 'Outperform' rating.

The shares, however, erased all the gains later and were up just 0.1 per cent at Rs 906.5 per share at 1:45 PM. By comparison, the benchmark S&P BSE Sensex was down 0.13 per cent at 65,349 level.

According to the brokerage, Paytm has showing early signs of an edge in digital lending, achieved by leveraging digital payment platforms. "This puts Paytm on the right side of disruption," it said in a report dated August 24.

 

From a one-year perspective, the brokerage sees the stock hitting the Rs 1,100-mark, up 21.4 per cent from the current market price, as it expects Paytm's loan disbursal volume to continue growing, touching the market share of 4 per cent by FY26 in the high-yield household lending segment (interest rates above 13 percent).

"Paytm is stabilising the margin in its payments segment. We expect the business to break even by FY25 and generate an EPS of Rs 130 by FY30," it said.

In FY23, Paytm added more lending customers than the number of credit card additions by the top four private sector banks combined — signs of an edge in customer acquisition, Bernstein noted.

Meanwhile, shares of the fintech company have surged 71 per cent thus far in calendar year 2023 as against the benchmark Sensex's 7.5 per cent gain. 

Early in August, Paytm founder, managing director and Chief Executive Officer Vijay Shekhar Sharma entered into an agreement to purchase 10.3 per cent stake in Paytm from Alibaba Group-backed Ant Financials (Antfin).

Sharma's direct shareholding in Paytm is set to increase to 19.42 per cent, whereas Antfin's shareholding will reduce to 13.5 per cent.

"We consider this announcement to be positive as it removes overhang on the stock from the risk that Antfin in future may look to reduce its stake leading to more supply. Furthermore, Vijay Sharma buying the stake at current market price indicates his confidence in the story with a "skin in the game" approach show. This event also reduces risk that some other strategic investor would have a major stake similar to that of Sharma," said analysts at BofA.

In November 2022, the Reserve Bank of India (RBI) declined Paytm Payments Services Limited's (PPSL) application to operate as a payment aggregator and gave it 120 days to reapply for the license. 

Until it gets an approval, the company, which is a wholly owned subsidiary of Paytm, has been asked to not onboard new online merchants. 

"This was to give PPSL time to comply with foreign direct investment (FDI) guidelines. With this development, we don't expect such concerns going ahead. We maintain 'Buy' on Paytm on favorable risk-reward," it said with a target of Rs 1,020.