Paytm Shares Jump 21% In 4 Days; Key Things Investors Should Know

Paytm shares continued to recover on February 21, hitting a 5 per cent upper circuit for the third straight session. In today’s trading session, the stock locked at a 5 per cent upper circuit limit at Rs 395 per share, marking the fourth consecutive day of a 5 per cent rally. Over these four days, the stock has gained a total of 21 per cent.

Factors For The Rally?

Several factors contribute to this renewed buying interest, including the RBI’s deadline extension, positive management comments, and recent favorable developments, such as the Enforcement Directorate (ED) finding no violation under the Foreign Exchange Management Act, a strategic deal with Axis Bank, and an ‘outperform’ rating from Bernstein.

While it has recovered around 24 per cent from the 52-week low of Rs 318 hit on February 16, the fintech firm’s stock is still trading 48 per cent below the January 31 closing price of Rs 761.20.

What Investors Need To Know

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,” said Pranav Gundlapalle of Bernstein, adding that the regulatory actions are restricted to Paytm Payments Bank (PPBL). He expects One 97 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, the brokerage estimates a 5 per cent decline in payment GMV and the worst-case impact of 4 bps on the payments processing margin from 9 bps currently, if the economics for Paytm doesn’t change significantly from switching to a non-PPBL partner.

“Our analysis of app traffic data indicates 10 per cent reduction in traffic, and we expect limited damage to the long-term user/merchant base,” Gundlapalle said.

While Jefferies has moved Paytm to its list of ‘Non-Rated’ stocks, Morgan Stanley has maintained an equal-weight rating with a target price of Rs 555.