Paytm extends gains to surge nearly 5%; Yes Securities sees 23% upside

Paytm stock has rallied 14 percent in the last one month. Year-to-date, however, the scrip is down 36 percent.

The share price of One 97 Communications, the parent company of Paytm, extended the previous session's gains on March 19 to trade nearly 5 percent higher. The stock has gained 14 percent in three days.

The sharp rally comes as Yes Securities upgraded the payments company stock to "buy" from "neutral" and raised the target price to Rs 505 from Rs 350.

Pessimism surrounding Paytm has ebbed a bid following NPCI’s approval to allow the company to participate in UPI as a third-party application provider (TPAP), enabling the company to facilitate payments.

Yes Securities has cited Paytm’s declining dependence on the wallet business for revenue, well-contained client loss due to reputational damage, rising partner addition and the competitive DNA of the company as the other reasons for the rating upgrade.

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Past successes underline the competitive DNA of Paytm as an organisation, said Yes Securities. “Having received feedback from the regulator and undergone a de-risking process, we now believe that a less volatile future lies ahead for Paytm," it said.

The brokerage values Paytm at 2.7 times FY25E P/S for an FY28-31E EPS CAGR of 78 percent. "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," it said.

The run-ins with the regulator may finally be over and most of the negatives are already reflecting in the price, it added.

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Analysts at Yes Securities cautioned that the discontinuation of the wallets business will hurt Paytm's revenues in the near term. "Loan distribution is presently stalled and continues to weigh on growth," it added.

At 11:35 am, Paytm was trading at Rs 408.45 on the National Stock Exchange (NSE), 4.95 percent up from the previous session. The stock has rallied 14 percent in the past one month. Year-to-date, however, the scrip is down 36 percent.

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