Shares of One 97 Communications, the parent company of fintech platform Paytm, have been in the spotlight on Dalal Street for quite some time, notably following the RBI’s action on the Paytm Payments Bank (PPBL), which ordered it to cease operations due to noncompliances and irregularities.
Paytm has been under regulatory scrutiny for some time, and its subsidiary PPBL has received numerous regulatory warnings. This has resulted in the RBI imposing harsh business limitations on PPBL.
According to brokerage business Motilal Oswal Financial Services (MOSFL), the restrictions have put the company at danger of losing clients and merchants, which will interrupt its growth trajectory.
“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.”
Domestic Brokerage
However, Paytm just gained NPCI approval to operate as a third-party app provider (TPAP), allowing it to function similarly to Google Pay and PhonePe. Paytm has partnered with Axis Bank, HDFC Bank, SBI, and YES Bank to enable a smooth business relocation.
“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
One97 Communications’ stock fell more than 1% to Rs 406 on Friday, with a market capitalization of more than Rs 25,000 crore. The scrip closed at Rs 411.15 in the previous trading session on Thursday. The stock has recovered around 30% from its 52-week lows of Rs 318.35.
Motilal Oswal has lowered its target price to Rs 530, based on a 15-times FY28E EV/Ebitda drop to FY26. The brokerage firm will reevaluate its rating after the fourth quarter results, but for the time being, it will keep a ‘neutral’ posture on the stock. The brokerage expects up to a 30% increase over the previous closing.
