Paytm parent One 97 Communications Ltd edged a percent higher on October 16 afternoon after Goldman Sachs raised the stock's target price, saying the Noida-based payments company could be the most profitable among India's internet companies.
The Vijay Shekhar Sharma-led fintech company remains well-positioned to capture a share of digital payments in India, given its industry-leading scale and engagement, Goldman Sachs analysts said.
The foreign brokerage expects Paytm to turn net income positive in FY25, which is likely to act as a catalyst for the stock.
Headwinds, tailwinds for Paytm
Regulations have remained a key focus area for Paytm investors and some recent developments have been either neutral or positive for Paytm, Goldman Sachs' analysts said.
The stock is currently pricing in multiple headwinds, including merchant discount rate (MDR) caps, a decline in market share and a significantly slower ramp-up of its financial services, they said.
"Paytm trades at the lower/mid end of the India Internet peers (on FY26 P/E), for a similar growth outlook, which we view attractively," Goldman Sachs analysts said. They expect continued momentum in Paytm's lending and payments, with strong operating leverage in the business model. In addition, resolution of outstanding regulatory issues and/or inclusion of a bank as a lending partner could act as catalysts for Paytm, the brokerage said.
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Catalysts for the stock
"We reiterate our buy rating (on Conviction List) and believe Paytm’s current share price continues to offer a compelling entry point into India’s largest and one of the most profitable fintech platforms," said Goldman Sachs in its report.
Key catalysts include the resolution of Paytm Payments Bank onboarding ban, payment aggregator authorisation, onboarding of a bank as a lending partner, expansion in margins and growth in the lending book while improving credit quality.
On October 12, the Reserve Bank of India (RBI) imposed a penalty of Rs 5.39 crore on Paytm Payments Bank for non-compliance of KYC norms.
The banking regulator also directed Paytm Payments Bank to stop onboarding new customers, citing “material supervisory concerns” and directed the company to appoint an audit firm to conduct a comprehensive review of its IT systems.
"The customer onboarding ban remains in place. We see the resolution of this regulatory issue as a key catalyst for the Paytm stock," the Goldman Sachs report said.
Target price raised
Paytm’s business model continues to show strong traction and within Goldman Sach's India Internet coverage, it views the company as one of the most compelling growth stories at an attractive price.
In the last few quarters, Paytm rapidly increased cross-selling on its platform, which resulted in improved profitability.
The brokerage has raised the target price to Rs 1,250 a share, implying a 34 percent upside from the October 13 closing price.
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At 2.42 pm, Paytm was trading at Rs 935 on NSE, up 0.2 percent from the previous close. The stock has surged around 76 percent this year.
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