Shares of Paytm hit the upper circuit of 5% for the second straight session today.
The brokerage house points out five key reasons behind the rating upgrade, including Paytm’s decreasing reliance on the wallet for revenue, the NPCI nod to participate in UPI as a Third-Party Application Provider (TPAP) in the multi-bank model, well contained. customer loss due to reputational damage, rising partner additions and the company’s competitive DNA.
First, Yes Securities noted that the reliance of One 97 Communications, the parent company of fintech giant Paytm, on the Wallet business for revenue has already declined materially to only about a sixth of Payments’ revenue.
Wallet business is housed within Paytm Payments Bank (PPBL), which after the RBI ban, will see its revenue decline to almost negligible. However, the brokerage firm noticed that, from the rough brokerage rate of ₹6,000 crore of revenue for the Payments business, the contribution of the Wallet has decreased to approx ₹1,000 crores. Therefore, the reset, while damaging to One 97 Communications (OCL), will not have a particularly huge impact.
Read also: Paytm gets third party license from NPCI. What does this mean to you?
Recently, the National Payments Corporation of India (NPCI) approved OCL to participate in UPI as TPAP in the multi-bank model.
“It is necessary to understand and appreciate that, if this approval did not come, OCL’s UPI business would also dwindle to zero. This is because OCL used to do its UPI transactions with PPBL as its Payment Service Provider (PSP) and with a unique UPI handle bearing “@paytm”. Under the multi-bank model, OCL has tied up with Axis Bank, HDFC Bank, SBI and YES Bank and the @paytm UPI holders are moving en masse to YES Bank, ensuring no disruption to the UPI business,” Shivaji Thapliyal, Head of Research and Senior Analyst, Yes Securities said in a report.
The analyst also believes that OCL’s customer loss due to reputational damage and ground confusion will be well contained. It noted that OCL’s UPI transaction value declined by 14% MoM in February 2024, which, adjusted for a few days, would be closer to ~10%.
Moreover, OCL’s loan distribution has experienced a reset, but the brokerage expects structurally that growth will be driven by partner lending along with same partner growth.
Read also: Paytm FAQ: What will work after March 15? Here’s what users need to know
Ultimately, while both the businesses of Monujo and BNPL are now under a cloud, the past successes underscore OCL’s competitive DNA as an organization, the analyst said.
OCL was the runaway leader in the Wallet market with $19.1 billion worth of Wallet GMV in FY23. In comparison, Mobikwik was a distant second with $1.01 billion. Similarly, Paytm was the single largest player in the BNPL market with a market share of 44.2% in FY23, with Mobikwik in second place with a 9.3% share, the brokerage report noted.
“While both these businesses are now under a cloud, the past successes underscore OCL’s competitive DNA as an organization. Having received feedback from the regulator and undergoing a de-risking process, we now believe OCL has a less volatile future,” said Thapliyal.
At 9:30 am, Paytm shares were at 5% upper circuit at ₹389.40 apiece on the BSE.
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Published: 18 Mar 2024, 09:39 IST