Domestic brokerage firm YES Securities has upgraded One 97 Communications Ltd (Paytm) for the first time since the company began covering the stock. The stock fell sharply after the RBI ordered the fintech firm to close its Paytm Payments Bank (PPBL) due to multiple compliance concerns.

Furthermore, as per YES Securities, Paytm's reliance on the Wallet business for revenue has already fallen significantly, accounting for only around one-sixth of payments revenue. The wallet business had decreased to Rs 1,000 crore out of a total revenue of Rs 6,000 crore. As a result, the harm will be rather little.

According to YES Securities, Paytm's approval by the NPCI to participate in UPI as a third-party application provider (TPAP) in the multi-bank model will keep its UPI business intact. Under the multi-bank approach, OCL has partnered with Axis Bank, HDFC Bank, State Bank of India (SBI), and YES Bank, with all @paytm UPI handles moving to YES Bank, assuring no disruption to the UPI business.

The brokerage stated that client losses due to reputational damage and on-the-ground uncertainty will be minimized. However, OCL is now actively communicating to ensure that customer loss is kept to a minimum, and it will also seek to recuperate clients who may have fled to other app platforms, according to the statement.

"Loan distribution has undergone a reset but partner addition will be supportive," said YES Securities. "However, loan distribution will resume in the short-term but BNPL will remain suspended till comfort is regained from a regulatory standpoint. Structurally, growth will be driven by lending partner addition alongside same partner growth."

YES Securities further stated that both the Wallet and BNPL businesses are cloud-based, and that Paytm's previous successes demonstrate the company's competitive DNA. "Having received feedback from the regulator and undergone a de-risking process, we now believe that a less volatile future lies ahead for Paytm," the company stated.

"We value OCL at 2.7 times FY25E P/S for an FY28-31E EPS CAGR of 78 per cent. We have not assumed any rehabilitation of OCL’s Wallet business in our assumptions. We have assumed a relatively constrained outlook for the loan distribution business. The market is currently pricing in an even more acute scenario," YES Securities added with a 'buy' rating and a target price of Rs 505.

On Friday, shares of One 97 Communications (Paytm) finished at Rs 370.90, having reached a 5-percent high. The company's entire market value exceeded Rs 23,500 crore. The stock has fallen approximately 63 percent from its 52-week high of Rs 998.

According to Morgan Stanley, the NPCI's decision to award TPAP clearance under the multi-bank model is a positive move that meets expectations. "We continue to await an update on the potential impact on Paytm's businesses on February 24, as well as updated ads, when Paytm Payment Bank's business moves to other banks. The global brokerage has a 'equal-weight' rating and a target price of Rs. 555.