Paytm's Regulatory Progress Highlights Easing Of Regulatory Overhang: Global Brokerages
Brokerages note that the development puts the company back on its growth path and viewed it as a crucial step towards future expansion
The recent government approval for One 97 Communications for downstream investment in its payments arm and wholly owned subsidiary, Paytm Payments Services (PPS), sparked renewed optimism among global brokerage firms.
The approval is expected to facilitate Paytm's recovery and growth trajectory as it navigates to its next phase of operations.
Global brokerages such as Citi, UBS, and Ventura Securities noted in their research reports that the approval removes regulatory overhangs and positions the company for a strong recovery as it enters its next phase. Further, these firms added that the development puts the company back on its growth path and viewed it as a crucial step towards future expansion.
On 27 August, Paytm informed via an exchange filing that it secured approval from the Ministry of Finance for its downstream investment into PPS.
The company stated, “With this approval in place, PPS will proceed to resubmit its PA application. In the meantime, PPS will continue to provide online payment aggregation services to existing partners.”
This approval is seen as a step towards the resumption of new online merchant acquisitions, which had been on hold since November 2022 due to regulatory restrictions.
Citi Research highlighted that the approval removes ownership-related concerns, with the company now required to secure the payment aggregator licence from the RBI before resuming new online merchant acquisitions.
UBS also echoed the sentiment and stated that the regulatory approval clears a significant hurdle for the company and boosts market confidence and a crucial step towards obtaining the necessary licence.
Morgan Stanley said, “We believe it reduces regulatory overhang incrementally. We will track the RBI's response to next steps.” Citing its robust business model and advanced technology as pivotal strengths, Brokerages are bullish on Paytm's potential.
Ventura Securities highlighted the company's expansive merchant base and emphasised that this creates a strong ecosystem for recurring revenue streams.
“Despite RBI stricture on associate Paytm Payment Bank (PPBL), we believe that Paytm's business model is robust and technology is gold standard. Paytm's pan-India merchant base of 40.7 mn and 78 mn monthly transacting users (MTUs) presents a strong ecosystem for recurring revenue streams,” said Ventura.
With UPI emerging as the favoured digital payments medium and Paytm originated soundbox becoming an essential toolkit for payments, Paytm is well placed to benefit from the tailwind associated with this, Ventura added.
They pointed to the growing adoption of Unified Payments Interface (UPI) and the significance of Paytm's originated soundbox and point-of-sale (POS) systems, which have become essential tools for digital payments. (ANI)
