Synopsis: Paytm shares surged by 5% after receiving government approval for downstream investment in its subsidiary, Paytm Payments Services Limited (PPSL). This approval enables PPSL to resubmit its payment aggregator application, potentially allowing Paytm to onboard new online merchants.
Paytm's Regulatory Progress and Market Response:
Paytm shares climbed 5 percent to hit a high of Rs. 565 on BSE before trading slightly lower at Rs. 545.50, following the company's announcement of a government-approved downstream investment in its wholly-owned subsidiary, Paytm Payments Services Limited (PPSL).
The market responded positively to this news, seeing it as a step toward resolving regulatory concerns and a move that may boost Paytm’s growth prospects.
Shares of One 97 Communications Ltd, the parent company of Paytm, saw a notable 5 percent rise in trading on Thursday, reaching a peak of Rs. 565 on the BSE before settling at Rs. 545.50.
This uptick came on the back of Paytm’s announcement that it had received approval from the Government of India’s Ministry of Finance for a downstream investment into its wholly-owned subsidiary, Paytm Payments Services Limited (PPSL).
With this approval, PPSL is now set to continue providing online payment aggregation services to its existing partners.
Paytm also expressed its intention to reapply for a payment aggregator (PA) license, signalling its commitment to adhering to regulatory standards and advancing its financial services offerings.
Analysts' Take on Paytm’s Prospects:
Analysts have reacted positively to this development, viewing the reduced regulatory uncertainty as a favorable outcome for Paytm.
Morgan Stanley maintained its 'Equal-Weight' rating on the Paytm stock, with a target price of Rs. 500, while Jefferies upheld a "Hold" call with a target price of Rs. 420.
These assessments suggest a cautious optimism, acknowledging potential growth while remaining mindful of the challenges ahead.
Ventura Securities, however, is more bullish on Paytm’s future.
According to their research note, they expect the stock to more than double to Rs. 1,170 over the next 24 months, based on their base case scenario.
In a more optimistic outlook, they set a target price of Rs. 1,444 per share, indicating a potential nearly threefold increase from current levels.
Even in a bearish scenario, Ventura sees the stock reaching Rs. 870, showcasing substantial potential upside.
Financial Forecasts and Growth Projections:
Ventura Securities’ projections indicate a robust growth trajectory for Paytm.
They anticipate the company’s revenue to grow at a compound annual growth rate (CAGR) of 14.1 percent to Rs. 14,531 crore by FY27.
Contribution profit is expected to rise by 15.6 percent to Rs. 8,301 crore, while pre-ESOP EBITDA could surge by 54.5 percent to Rs. 1,829 crore over the same period.
Post-ESOP EBITDA and net earnings are also expected to turn profitable, with forecasts of Rs. 1,379 crore and Rs. 1,388 crore by FY27, respectively, compared to the losses recorded in FY24.
Ventura attributes this anticipated growth to the increase in gross merchandise value (GMV) from payment services and devices, which they project to reach Rs. 32.1 lakh crore, representing a CAGR of 21.9 percent.
They also foresee significant expansion in loan disbursals and marketing service revenues.
In conclusion, the approval for downstream investment in PPSL marks a significant milestone for Paytm, potentially paving the way for renewed growth and a stronger position in the digital payments space.
While analysts present varied price targets, reflecting different levels of confidence in Paytm's regulatory and market strategies, the overall sentiment appears cautiously optimistic.
Investors should closely monitor how these developments unfold, especially regarding Paytm's ability to secure a payment aggregator license and expand its merchant base.
Disclaimer: The information provided here is for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
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