Paytm shares at 52-week high after new regulatory clearance; Analysts see targets up to ₹1,400

Shares of One97 Communications Ltd., parent company of online payments aggregator Paytm, will be in focus on Wednesday, August 13, after the Reserve Bank of India (RBI) granted its unit Paytm Payments Services Ltd., in-principle authorisation, to operate as an Online Payment Aggregator.

Paytm Payments Services Ltd. (PPSL) is a wholly-owned subsidiary of One97 Communications.

The RBI letter mentioned that merchant onboarding restrictions placed on PPSL in November 2022 have been withdrawn, but the firm has been authorised to undertake a system audit, including one for cybersecurity.

The audit report will have to be submitted to the RBI within six months and in case that does not happen, the in-principle authorisation will lapse automatically and the grant of a final authorisation will not be considered thereafter, according to the regulator's letter.

Earlier, when the ban was imposed, the management of Paytm had stated that this will have no material impact on the business since it is only applicable on the onboarding of new online merchants.

Paytm has recently seen the exit of the Chinese overhang,

when Antfin sold its remaining stake in the company via block deals. Similar to Warren Buffett's Berkshire Hathaway, Antfin too sold its stake in Paytm at a loss.

Brokerage firm Citi has a "buy" rating on Paytm with a price target of ₹1,215. It stated that the license win after nearly three years is a positive for sentiments as it lifts a major regulatory restriction on its business.

With the restriction now lifting, Paytm can leverage its relative scale and product development capabilities to be more competitive, Citi said.

Bernstein has an "outperform" rating on Paytm with a price target of ₹1,100, which is below Tuesday's closing price for Paytm.

Calling this a significant and positive development, Bernstein said that there will be a limited immediate impact but it counts as a major relief nonetheless.

"Over time, this should support higher payment margins, as it can now onboard the long tail of smaller merchants that typically yield much higher margins than large enterprise clients," Bernstein said.

Shares of Paytm ended 0.3% lower on Tuesday at ₹1,118.5. The stock has risen 15% in the last one month, and nearly 50% in the last six months. The stock made a new 52-week high of ₹1,136 on Tuesday. Despite this, it remains 50% below its IPO price of ₹2,150.