Paytm Shares Surge 3% After Emkay Global’s Ratings Upgrade

Paytm's share price surged over 3 per cent on Tuesday, following a ratings upgrade from Emkay Global Financial Services. The stock climbed as much as 3.30 per cent to Rs 673.05 per share on the BSE, buoyed by the brokerage firm's optimistic assessment of the fintech giant's prospects.

Emkay Global upgraded its rating on One 97 Communications, Paytm’s parent company, from ‘Reduce’ to ‘Add,’ while significantly raising its DCF-based target price by 100 per cent, from Rs 375 to Rs 750 per share. This revised target suggests a potential upside of over 15 per cent from Monday's closing price.

The brokerage attributed its positive outlook to easing regulatory pressures and Paytm's effective cost optimisation measures. "Easing regulatory stance shall pave the way for approvals from the NPCI and RBI to onboard new users/online merchants, driving the business turnaround. This, coupled with its cost optimisation measures, should put Paytm on the early path to profitability," said Anand Dama, Senior Research Analyst, Emkay Global Financial Services.

Paytm’s strong market presence, retaining a merchant franchise of approximately 41 million, was highlighted as a key strength. Emkay noted that Paytm has successfully transitioned its user base to new partner banks and expects the company’s merchant lending business to be a significant growth driver in the near-to-medium term.

Cost optimisation has been a core focus for Paytm. Dama pointed out that the company has implemented cost-cutting through voluntary and involuntary staff attrition and limited marketing expenses, as its payment business increasingly shifts to UPI. “We expect opex (excluding depreciation/ESOP) to fall 15 per cent year-on-year in FY25E. This, along with improving traction in its broking business and interest income from the sale proceeds of the entertainment business, should help it achieve a positive Operating EBITDA (excluding ESOP and UPI incentives) by 4QFY25E,” Dama added.

The brokerage also expects Paytm to turn PAT positive by FY27E, a year earlier than previously estimated, driven by better revenue growth from the payment and lending business, ongoing cost optimisation, and a reduction in ESOP costs.

In Q1FY25, Paytm reported operating revenue of Rs 1,502 crore and a Gross Merchandise Value (GMV) of Rs 4.3 lakh crore, reflecting a 27 per cent year-on-year increase. This growth underscores the company's resilience and potential in the evolving financial services sector.

Paytm shares are currently trading at a premium, with an EV/TTM operating revenue of 4 times, compared to global paytech peers like PayPal and Paysafe (2.3 times), attributed to India's growth prospects and Paytm's unique loan distribution business. However, it is still at a discount compared to profitable BNPL players like Affirm (4.9 times), according to Emkay Global.

The brokerage firm believes further re-rating of Paytm will depend on the rapid recouping of lost consumer MTU, a strong recovery in the lending business as partner/attrition issues ease, and an absence of additional regulatory disruptions.

Recently, Paytm’s share price has shown significant momentum, rising over 19 per cent in one month and jumping more than 61 per cent in three months. Its year-to-date (YTD) returns currently stand at just over 4 per cent.