Paytm shares jump over 3% after Emkay upgrades rating, doubles target price

Paytm share price: The rally comes after Emkay Global Financial Services upgraded its rating on One97 Communications from 'Reduce' to 'Add' while doubling its target price to Rs 750 per share from the previous Rs 375.

In Short

• Paytm shares gain 3.5% after Emkay's upgraded rating
• Emkay doubles Paytm target price to Rs 750 per share
• Stock up 61% in three months; 19% rise in a month

Shares of One97 Communications Ltd, the parent company of payments firm Paytm, gained nearly 3.5% on Tuesday.

At 12:27 PM, Paytm's stock was trading 3.46% higher at Rs 674.05 on the Bombay Stock Exchange (BSE).

The rally comes after Emkay Global Financial Services upgraded its rating on One97 Communications from ‘Reduce’ to ‘Add’ while doubling its target price to Rs 750 per share from the previous Rs 375.

This revised target implies a potential upside of over 15% from Monday’s closing price.

The brokerage attributed its optimism to a combination of easing regulatory pressures and the company's effective cost-cutting initiatives.

“With the regulatory stance softening, we expect approvals from the NPCI and RBI for onboarding new users and online merchants, which should accelerate Paytm's business turnaround. Combined with cost optimization efforts, Paytm is well-positioned for an early path to profitability,” said Anand Dama, Senior Research Analyst at Emkay Global Financial Services.

Emkay also highlighted Paytm's stable market presence, noting its strong merchant franchise, which stands at approximately 41 million. The company’s successful transition to new partner banks and the growing importance of its merchant lending business were also cited as key factors for future growth.

Cost optimisation has been a core component of Paytm's recent strategy. Dama pointed out that the company has been reducing expenses through both voluntary and involuntary staff attrition while scaling back on marketing as its payment business increasingly shifts to UPI.

As a result, Emkay expects operating expenses, excluding depreciation and ESOP costs, to decrease by 15% year-on-year in FY25. This, along with growth in its broking business and increased interest income from the sale of its entertainment business, is expected to help Paytm turn positive on Operating EBITDA (excluding ESOP and UPI incentives) by the fourth quarter of FY25.

Additionally, stronger revenue from Paytm’s payment and lending segments, alongside continued cost reductions, is expected to drive profitability.

Dama noted that the firm is now projecting Paytm to turn PAT positive by FY27, a year earlier than previously forecast.

Paytm's recent financial performance supports this positive outlook. In the first quarter of FY25, the company reported operating revenue of Rs 1,502 crore, with a Gross Merchandise Value (GMV) of Rs 4.3 lakh crore, marking a 27% year-on-year growth.

Despite trading at a premium (EV/TTM operating revenue: 4x) compared to global fintech peers like PayPal or Paysafe, Paytm remains at a discount to Buy Now Pay Later (BNPL) players such as Affirm (4.9x).

Emkay believes Paytm's future re-rating will depend on regaining consumer Monthly Transacting Users (MTU), a strong rebound in its lending business as partner and attrition issues ease, and the absence of further regulatory disruptions.

Paytm shares have gained significant momentum recently, rising over 19% in the past month. Over the last three months, the stock has surged by more than 61%, with year-to-date returns standing at just over 4%.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)