Shares of One 97 Communications, the parent company of fintech platform Paytm, have been hogging spotlight on Dalal Street for quite some time, particularly after RBI's action on the Paytm Payments Bank (PPBL), ordering it to wind up the operations over non-compliances and irregularities. Paytm has been under regulatory scrutiny for some time, with its subsidiary PPBL receiving multiple regulatory warnings. This has led to the RBI imposing severe business restrictions on PPBL. The restrictions have put the company at risk of losing customers and merchants, disrupting its growth trajectory, said brokerage firm Motilal Oswal Financial Services (MOSFL). "We anticipate a further decline in UPI transaction volume and value data in March 2024 as well. We review our numbers and estimate payment processing margin to decline as the mix of high-yielding wallet business declines sharply, while the impact on financial business (loan origination volumes) further suppresses revenue growth and profitability," said the domestic brokerage. However, Paytm has recently received NPCI approval to function as a third-party app provider (TPAP), which will enable it to work like its peers, Google Pay and PhonePe. Paytm has tied up with Axis Bank, HDFC Bank, SBI, and YES Bank to ensure smooth business migration. "We remain watchful on the ongoing business transition and Paytm’s ability to recover lost business and resume growth trajectory over FY25- 26E. We thus estimate FY25E revenue to decline by 24 per cent, while contribution profit declines 30 per cent. We estimate contribution margin to sustain at 51 per cent over FY25E," MOSFL said. Shares of One97 Communications dropped more than a per cent to Rs 406 on Friday, commanding a total market capitalization of more than Rs 25,000 crore. The scrip had settled at Rs 411.15 in the previous trading session on Thursday. The stock has rebounded about 30 per cent from its 52-week lows at Rs 318.35. Motilal Oswal has revised its target price to Rs 530 based on 15 times FY28E EV/Ebitda discounted to FY26. The brokerage firm will revisit its rating post fourth-quarter results and in the interim maintain its 'neutral' stance on the stock. The brokerage sees up to 30 per cent up side in the from its previous close. Another brokerage, YES Securities, had recently upgraded Paytm to 'buy' 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 said. NPCI's grant TPAP approval under multi-bank model is a positive development and in-line with expectations, said Morgan Stanley. "We continue to await an update on potential impact to Paytm's businesses during February 24, and updated commercials for it as Paytm Payment Bank's business moves to other banks. The global brokerage has an 'equal-weight' rating with a target price of Rs 555.
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