Paytm shares up 5%, hit upper circuit limit for 2nd straight session. Here's why

One 97 Communications Limited (Paytm) saw its shares hitting 5 per cent upper circuit limit in Monday's trade, as investors reacted to the fintech major's decision to partner with Axis Bank for continuation of merchant settlements. The stock also gained as the Reserve Bank of India's RBI's FAQs (frequently asked questions) brought some clarity over continuation of Paytm QR, Card machine and Soundbox services beyond the March 15.

As soon as the opening bell rang, the Paytm stock hit its upper price band of 5 per cent at Rs 358.55 on BSE. At this price, Paytm commanded a market capitalization of Rs 22,773.21 crore. This was the second straight session when Paytm shares hit their upper circuit limits. While Bernstein suggested an outperform rating on the stock with a target of Rs 550, Citi reportedly suggested a target of Rs 550 but maintained its sell call on the stock, even as it felt new partnerships would be significantly positive for the ongoing business. The global brokerage reportedly expected Paytm to announce more bank partnerships. 
In a filing to BSE, Paytm said the Axis Bank arrangement was made to replace the nodal account that Paytm was using with Paytm Payments Bank.  Paytm said Paytm Payment Services, the wholly owned subsidiary of Paytm, was already using the Axis Bank services, since its inception.

"Both OCL and PPSL are also in discussions with other banks to evaluate a second partner for nodal / escrow services. Consumer payments for merchant transactions are typically collected in a dedicated account. This arrangement enables Paytm to seamlessly transition its merchants’ settlements," it said.

The RBI's FAQs suggested Paytm QR, Card machine and Soundbox would continue to work beyond March 15.

Morgan Stanley on Monday said while the RBI extended the timeline for the effective ban on banking/wallet related operations to March 15, there was no change made to  timeline for nodal accounts of Paytm and Paytm Payments Services with Paytm Payments Bank. The foreign brokerage noted that the nodal accounts are to be terminated by February 29, with settlements can be completed by mid-March.

This brokerage has 'equalweight' rating on the stock with a target of Rs 555.

Bernstein said it would wish to have more laity on what merchants need to do to continue using these payment solutions, if any. Besides, it said it would want to know what Paytm needs to do to enable these payments and if it's permitted to do so? (e.g. Switch over Nodal accounts, Partner with another bank as PSP etc).

"The details were probably not provided as they deal with One 97 entity and potentially areas that NPCI governs but given these were supposed to be released in consultation with NPCI and NHAI, more details would have been helpful," Bernstein said. 

Also read: Stock recommendations by analyst for February 19: Adani Ports, SBI Life and Tata Consumer

Also read: NHPC shares in focus today as PM Modi lays foundation stone of solar power plant in Bikaner