Paytm shares continued to recover on February 21, hitting a 5 percent upper circuit for the third straight session. At 1 pm, the stock was trading at Rs 395.05 on the National Stock Exchange. Paytm stock took a hit after January 31 when RBI imposed strict restrictions on Paytm Payments Bank Ltd (PPBL).
While it has recovered around 24 percent from the 52-week low of Rs 318 hit on February 16, the fintech firm's stock is still trading 48 percent below the January 31 closing price of Rs 761.20.
The surge in Paytm share price over the last three sessions can be attributed to several factors, including the RBI extending the deadline to March 15, positive comments from management, and recent developments such as the Enforcement Directorate (ED) finding no violation under the Foreign Exchange Management Act (FEMA), a deal with Axis Bank, and an 'outperform' rating by Bernstein.
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While several brokerages have downgraded Paytm stock and slashed target prices after the RBI action, Bernstein remains bullish.
"Given the still depressed valuation and the removal of a major regulatory overhang, we see considerable upside and maintain our Outperform rating with a Target Price of Rs 600," the brokerage said in a report, adding that the regulatory actions are restricted to Paytm Payments Bank (PPBL).
The international brokerage expects Paytm to successfully execute the operational changes required to remove the dependency on PPBL with limited long-term impact to their overall business.
With the PPBL’s products such as wallets and FASTags set to drop, analysts estimate a 5 percent decline in payment GMV and the worst-case impact of 4 bps on the payments processing margin from 9 bps currently, if the economics of Paytm don't change significantly over switching to a non-PPBL partner.
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While Jefferies has discontinued its rating on Paytm and has moved it to its list of 'Non-Rated' stocks. Morgan Stanley has maintained an equal-weight rating on the stock with a target price of Rs 555.
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