SUMMARY
- The brokerage firm Bernstein has reportedly posited that the “best scenario” for Paytm would involve an acquisition by either a bank or a large NBFC.
- Bernstein notes that a significant investment from a major corporate entity could expedite Paytm’s recovery and protect it from potential future regulatory challenges.
- Bernstein projects that, in its current form, the troubled fintech major is well-positioned to achieve profitability by FY27.
The brokerage firm Bernstein has reportedly posited that the “best scenario” for Paytm would involve an acquisition by either a bank or a large non-banking finance company (NBFC).
In a note reviewed by Economic Times, Bernstein suggests that such a partnership could benefit banks aiming to develop consumer-focused applications, allowing them to leverage Paytm’s extensive customer base for cross-selling non-bank products.
The brokerage further believes that such a move would enable banks to offer superior products to their existing customers and introduce innovative credit products through payment channels like credit lines on UPI, leveraging Paytm’s distribution network.
Additionally, Bernstein notes that a significant investment from a major corporate entity could expedite Paytm’s recovery and protect it from potential future regulatory challenges.
Big companies like Reliance Jio, the Adani Group, and the Tata Group are creating their own fintech companies. These initiatives could receive a significant increase with the purchase of Paytm, noted Bernstein. This comes after reports emerged in recent months that Paytm was considering a stake sale to the Adani Group. However, the fintech giant has since denied these reports.
Moreover, Bernstein projects that, in its current form, the troubled fintech major is well-positioned to achieve profitability by FY27.
However, the brokerage firm suggests that rapidly expanding its secured lending business and securing an 8-10 basis point share of the merchant discount rate on UPI payments above Rs 2,000 could significantly accelerate profitability by FY26. It also recommends that cutting costs more swiftly and reducing staff could further narrow the timeline for profitability.
Bernstein has set a price target (PT) of Rs 600 per share for Paytm, marking an upside of nearly 5% from the stock’s most recent close of Rs 573.2 on the BSE on Monday (August 19).
The fintech major has found itself in a major crisis earlier this year following the Reserve Bank of India’s (RBI) decision to bar its profitable payments bank arm from engaging in any business activities. This decision has severely impacted the company’s operations, leading to a steady increase in losses.
For the second quarter in a row, Paytm reported a 134% YoY increase in losses to Rs 840.1 crore, with revenue from operations falling by 36% to Rs 1,502 crore from Rs 2,342 crore in the same quarter the previous year.
Bernstein attributes these losses to the negative impact on its banking operations and notes that the government’s reduction in the budgetary allocation for digital payments is likely to affect Paytm’s revenue sources in the current fiscal.
The government has recently cut the budget allocation for digital payments in the full Budget to Rs 1,441 crore, down from the Rs 3,500 crore announced in the interim budget in February.
