Paytm hits upper circuit 6 times in 7 days. Time to buy?

Shares of Paytm parent One 97 Communications Ltd gained 5 percent to be locked in the upper circuit again on February 26, the sixth time in the past seven sessions, continuing to recover from its all-time low of Rs 318.05 following RBI’s restrictions on its banking arm.

Paytm closed at Rs 428.10 on the National Stock Exchange, up 4.99 percent from the previous close.

Despite the recovery, the market capitalisation of the payments major is 30 percent down from January 31, when the central bank came out with the Paytm Payments Bank circular. The stock is down 33 percent for the year-ago period.

The recent surge comes after some positive developments around the RBI’s action on Paytm Payments Bank. Recently, the RBI advised the National Payments Corporation of India (NPCI) to examine Paytm’s request to be a third-party application provider (TPAP).

If approved, this move will ensure uninterrupted UPI services  for Paytm customers.

The central bank also recommended that if NPCI grants TPAP status to parent company One97 Communications, it could require seamless migration of ‘@paytm’ handles from Paytm Payments Bank to a newly identified set of banks to prevent a disturbance.

Analysts, however, are not convinced yet. Asutosh Mishra, head of research at Ashika Stock Broking, said he won’t advice investing in Paytm. “

“The simple reason is that there are many other opportunities available at much more attractive valuations and prices right now. Even within the UPI ecosystem, Paytm isn’t the market leader and considering the regulatory issues they’ve faced, I believe more challenges may arise once things settle down,” he said.

He would stay from the payments aggregator until everything is resolved. “Instead, there are many promising opportunities in the BFSI space worth considering. Betting on them could lead to more peaceful and profitable investments,” he said.

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During the past week, Goldman Sachs downgraded the stock to a “neutral” and slashed the target price to Rs 450 from Rs 860. The adjustment was to reflect concerns about potential market share loss in the payments sector.

The research house foresees a lending slowdown in the near future  due to the RBI’s restrictions on the payments bank.

Consequently, Goldman Sachs analysts also slashed Paytm’s revenue and adjusted EBITDA estimates for FY24E-26 by up to 36 percent and 80 percent. They now anticipate a 21 percent year-on-year decline in FY25 revenues, compared to the previous projection of 16 percent growth.

Several brokerages downgraded Paytm shares after the RBI action, while Jefferies moved it to its list of “non-rated” stocks. Bernstein, however, remains bullish on the stock.

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