One97 Communications' shares saw a more than 1% decline to Rs 406 on Friday, valuing the company at more than Rs 25,000 crore. The parent company of the fintech platform Paytm, One 97 Communications, has been the talk of Dalal Street lately with its shares, especially since the RBI ordered the Paytm Payments Bank (PPBL) to shut down due to non-compliances and irregularities.
For a while now, Paytm has been the subject of regulatory investigation; several regulatory warnings have been issued to its subsidiary, PPBL. As a result, PPBL is subject to stringent business limitations from the RBI. According to brokerage business Motilal Oswal Financial Services (MOSFL), the restrictions have put the company at risk of losing merchants and clients, which would interrupt its growth trajectory.
In March 2024, we also expect a further fall in UPI transaction volume and value data. The impact on financial business (loan origination volumes) further restrains revenue growth and profitability, and after reviewing our data, we expect that the payment processing margin will drop as the mix of high-yielding wallet business declines substantially," the domestic brokerage stated.
Nonetheless, Paytm has been given permission by the NPCI to operate as a third-party app provider (TPAP), allowing it to function similarly to its competitors, PhonePe and Google Pay. Paytm has partnered with SBI, YES Bank, HDFC Bank, and Axis Bank to guarantee a seamless transition of business.
Closely monitoring has been cariredwith respect to the current business shift and Paytm's capacity to win back lost revenue and pick up speed during FY25–26E. Accordingly, we project a 24% drop in revenue and a 30% reduction in contribution profit for FY25E. Over FY25E, we project the contribution margin to remain at 51%, according to MOSFL.
One97 Communications' shares saw a more than 1% decline to Rs 406 on Friday, valuing the company at more over Rs 25,000 crore. In Thursday's previous trading session, the share closed at Rs 411.15. The stock has increased by around 30% since hitting its 52-week low of Rs 318.35.
The lowered target price of Rs 530 by Motilal Oswal is based on a 15 times reduction to FY26 EV/Ebitda from FY28E. The brokerage company will keep its "neutral" recommendation on the stock in the meantime and review it after the fourth-quarter data are in. The brokerage is seeing an increase of up to 30% from its previous closing.
Paytm was recently upgraded to a 'buy' rating by YES Securities, another brokerage, with a target price of Rs 505. "The client loss due to reputational damage and on-ground confusion will be well contained; Loan distribution has undergone a reset but partner addition will be supportive and the past successes underline the competitive DNA of One97 Communications as an organisation," it stated.
Morgan Stanley described NPCI's award of TPAP approval under the multi-bank model as a positive development that is consistent with expectations. "As the operations of Paytm Payment Bank shift to other banks, we are still awaiting an update on the possible effects on Paytm's businesses on February 24 and updated advertisements for it. Targeting Rs 555, the global brokerage has a 'equal-weight' rating.
