Paytm Gets 'Buy' Upgrade From Citi After NPCI Regulatory Clearance

Paytm's parent company, One97 Communications Ltd., got a 'buy' upgrade from Citi Research after the National Payments Corp. of India gave the company regulatory clearance. The company also reported strong earnings.

Citi has also raise the target price to Rs 900 per share from the earlier Rs 440, implying a potential upside of 19%. 

The company received approval from the NPCI to resume onboarding new users for its Unified Payments Interface service. This clearance removes a major roadblock to Paytm's growth recovery. 

Citi's note suggests that Paytm's Monthly Transacting Users are expected to bottom out in the third quarter of fiscal 2025. The company's regulatory challenges, including Foreign Direct Investment compliance and Paytm Payments Bank Ltd. regulations, are largely resolved, the brokerage said.

In the second quarter, Paytm posted an adjusted Ebitda loss of Rs 180 crore, compared to Citi's estimate of a Rs 260 crore loss. This performance was bolstered by a sharp reduction in operating expenses, including a 24% year-on-year decline in employee costs (excluding stock options) and a 40% drop in marketing expenses.

While the company's revenue was in line with estimates, payment volumes and margins slightly missed projections. Its financial services segment outperformed expectations, showing 18% growth despite a 7% decline in loan disbursals.

Paytm has also announced plans to offer Default Loss Guarantees to its lending partners in the merchant loans distribution business, in compliance with RBI guidelines. This move is expected to accelerate the growth of Paytm's merchant loan disbursals. Citi anticipates that Paytm will achieve breakeven on its adjusted Ebitda, excluding UPI incentives, by the fourth quarter of the current fiscal, as guided by the company.

The report also highlights Paytm's renewed focus on growth, with higher expectations for customer and merchant acquisitions in UPI, payment devices, and its payment gateway (subject to RBI licencing approval).

However, Citi flagged competitive pressures, particularly from PhonePe and Google Pay, which have gained market share following regulatory actions earlier this year. The research note also warned that any additional regulatory developments or user churn could pose downside risks to Paytm's growth trajectory.

Shares of the company closed 8.54% higher at Rs 745.10 apiece, as compared to a 0.15% decline in the benchmark Nifty 50.