BofA Global Research cut its target price of Paytm's parent company, One97 Communications Ltd., on Friday, citing near-term challenges following a change in strategy and a reduced number of loans.
The brokerage cut the target price on the stock to Rs 905 from Rs 1,165 earlier, implying a 32.15% upside from its market price as of 12:06 p.m. It has reiterated its 'buy' rating for the stock.
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However, its structural story remains intact on the back of better take rates and cost control. The stock's risk-reward ratio is also favourable, BofA said in a note.
"Paytm stock price is down 28% in the last three months vs. Nifty up 10%, mainly after its change in strategy of de-focusing on low-margin BNPL loans," it said.
BofA highlighted several factors that the market is missing, including a shift away from the buy-now, pay-later method that would improve the take rate to 3.8–4% in the coming quarters from 3.3% in the second quarter. It also cited the tie-up with Axis Bank in the personal-loan space going live in the fourth quarter.
Levers like cost control and embedded insurance uptake would result in 6% and 11% Ebitda margins in the current and next financial years, respectively. Other catalysts for the stock include more lending partner onboarding and consensus upgrades, led by cost control and take-rate uptake, according to BofA.
On the NSE, Paytm's stock rose 1.98% during the day to Rs 681.95 apiece, the highest since Dec. 7. It was trading 1.9% higher at Rs 681.40 apiece, compared to a 0.32% advance in the benchmark Nifty 50 at 10:30 a.m.
The share price has risen 25.11% in the last 12 months. The relative strength index was at 45.78.
Ten out of 15 analysts tracking the company have a 'buy' rating on the stock and five recommend a 'hold', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 44.4%.
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