The parent company of the payments startup Paytm, One97 Communications Ltd., saw a roughly 3.5% increase in shares on Tuesday. Paytm's shares were up 3.46% at Rs 674.05 on the Bombay Stock Exchange (BSE) at 12:27 PM.

The increase follows a downgrade of One97 Communications from 'Reduce' to 'Add' by Emkay Global Financial Services, which also doubled its target price to Rs 750 per share from Rs 375.

This updated goal suggests a possible gain of more than 15% from the closing price on Monday. The firm ascribed its confidence to the company's successful cost-cutting efforts as well as the relaxation of regulatory restrictions.

"We anticipate receiving clearances from the NPCI and RBI for onboarding new customers and online merchants as a result of the regulatory posture relaxing, which should hasten Paytm's economic recovery. Anand Dama, Senior Research Analyst at Emkay Global Financial Services," stated that Paytm is well-positioned for an early route to profitability when combined with cost efficiency measures.

Emkay further emphasized Paytm's consistent market presence, pointing out that the company has a robust merchant network with almost 41 million users. Future development prospects for the company were also seen as being largely dependent on its merchant lending business's increasing significance and its smooth transfer to new partner banks.

One of the main tenets of Paytm's current approach has been cost optimization. Dama said that as its payment business progressively moves to UPI, the company has been cutting costs through both voluntary and involuntary worker turnover while decreasing its marketing spend.

Because of this, Emkay anticipates a 15% annual drop in operating expenditures in FY25, excluding depreciation and ESOP charges. Paytm is anticipated to become positive on Operating EBITDA (excluding ESOP and UPI incentives) by the fourth quarter of FY25 with the support of these factors, as well as development in its broking business and increasing interest revenue from the sale of its entertainment business.

Additionally, profitability is anticipated to be fueled by continuing cost reductions as well as increased income from Paytm's loan and payment divisions.

According to Dama, the company now expects Paytm to become profitable by FY27, one year ahead of schedule.

Paytm's financial success in the last quarter validates this optimistic view. With a Gross Merchandise Value (GMV) of Rs 4.3 lakh crore and operational income of Rs 1,502 crore for the first quarter of FY25, the firm recorded a 27% year-over-year rise.

Paytm is still less expensive than Buy Now Pay Later (BNPL) competitors like Affirm (4.9x) even if it trades at a premium (EV/TTM operating revenue: 4x) when compared to its international fintech rivals, such as PayPal or Paysafe.

Emkay believes that recovering Monthly Transacting Users (MTU) from customers, a robust recovery in its loan business as partner and attrition difficulties go away, and the lack of any regulatory hiccups would be key factors in Paytm's future re-rating.

Paytm's stock has lately increased significantly, jumping more than 19% in the last month. The stock has increased by over 61% in the previous three months, and its year-to-date gains are just over 4%.