Shares of One97 Communications, the parent company of fintech giant Paytm, surged to a 52-week high today, marking its second such achievement this week. The stock climbed 5.2% intraday to reach Rs 1829.50, elevating the company's market capitalization to a significant Rs 1.16 lakh crore.
Brokerages Optimistic, Forecast Price Target Above IPO
The recent rally in Paytm's stock is significantly bolstered by positive outlooks from global brokerages. Bernstein, a prominent global brokerage, has designated Paytm as its top pick, assigning an ambitious price target of Rs 2,200. This target notably surpasses Paytm's initial public offering (IPO) price of Rs 2,150, which was set nearly five years ago when the stock first opened for subscription in November.
Bernstein highlights several key factors driving its optimistic forecast, including robust growth in merchant lending, improved operating leverage, and the potential introduction of a Merchant Discount Rate (MDR) on UPI transactions. The brokerage projects Paytm’s Earnings Per Share (EPS) to reach Rs 78 by FY29. Even if the potential impact from UPI MDR is excluded, their FY29E EPS estimate stands at Rs 54, comfortably exceeding the consensus estimate of Rs 46.
Jefferies Also Raises Price Target
Adding to the positive sentiment, another global brokerage, Jefferies, has also increased its price target for Paytm. Jefferies raised its target to Rs 2,100 from its previous Rs 1,600, signaling strong confidence in the company's future performance. Jefferies believes Paytm is strategically positioned to leverage its extensive customer base effectively. The brokerage pointed out Paytm's proven ability to generate revenue even within a near-zero merchant discount rate environment, anticipating an even more favorable backdrop as the MDR framework for UPI continues to evolve.
In line with this positive outlook, Jefferies has revised its earnings estimates for financial years 2028 and 2029 upwards by 20% and 25% respectively, factoring in a 25-basis-point MDR on UPI transactions.
Potential UPI MDR Framework in Focus
The discussion around a potential Merchant Discount Rate for UPI transactions continues to be a significant point of interest for fintech companies like Paytm. Reports suggest that the government may soon issue a notification regarding MDR, potentially fixing it at 40 basis points. Under such a framework, payment providers and acquiring banks could each receive 30% of the MDR, with issuing banks receiving the remaining 40%.
This evolving regulatory landscape, coupled with Paytm's strong operational performance and strategic initiatives, positions the company for continued growth as anticipated by leading financial analysts.