The share price of One97 Communications, the parent of Paytm saw a sharp reaction to the RBI scrapping the banking licence for Paytm Payments Bank. However, global brokerage house Goldman Sachs has rated the stock a ‘Buy’with a target price of Rs 1,400. This translates to a potential upside of about 22% from current levels.

According to the Goldman Sachs report, while recent developments linked to Paytm Payments Bank Limited (PPBL) have raised questions, the core business of Paytm continues to show steady traction, especially in payments and merchant growth.

Let’s take a look at the key reasons why the brokerage is bullish on the stock and the rationale behind it –

Goldman Sachs on Paytm: RBI action on PPBL – What it means

A major trigger behind the recent spotlight on Paytm is the action taken by the Reserve Bank of India on PPBL. 

According to the brokerage report, “On 24 April, the RBI (Reserve Bank of India) cancelled PPBL’s (Paytm Payments Bank) license.”

This move follows earlier restrictions imposed in January 2024, when the regulator had already limited most of PPBL’s operations. 

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However, the brokerage noted that the direct financial impact on Paytm may be limited. This is because Paytm had already impaired, or written off, its investment in PPBL earlier and currently does not derive revenue from the bank.

As per the Goldman Sachs report, Paytm holds a 49% stake in PPBL, while the remaining stake is held by its founder. Even so, operational separation between the two entities has already taken place over time.

Goldman Sachs on Paytm: Shift away from PPBL already underway

The brokerage house further in its report noted that Paytm had started reducing its dependence on PPBL well before the latest regulatory action. It received a Third Party Application Provider (TPAP) license from the National Payments Corporation of India (NPCI), allowing it to migrate its Unified Payments Interface (UPI) operations away from PPBL.

Goldman Sachs further added in its report added that services have already been decoupled from PPBL, ensuring continuity for users and merchants.

However, there are still some uncertainties. The brokerage added in the report that since Paytm and PPBL share the same brand identity, it remains to be seen whether the regulatory action could impact customer or merchant sentiment in the short term.

Goldman Sachs on Paytm: Growth in payments and merchant base remains strong

Despite regulatory concerns, the core business trends remain steady. 

Goldman Sachs added that Paytm has continued to gain market share in both consumer and merchant segments. 

As per the brokerage report, “we have seen continued gains in both consumer and merchant market share…translating into an acceleration in Paytm’s GMV growth to 26% YoY.” 

Goldman Sachs on Paytm: Revenue growth moderates, margins still in focus

While transaction growth remains healthy, revenue growth is expected to slow slightly. According to the brokerage report, “the absence of PIDF (Payments Infrastructure Development Fund) incentives drives deceleration in our revenue growth forecast to 14% YoY in Q4.” 

At the same time, profitability remains a key area to watch. The brokerage expects Paytm to maintain stable earnings before interest, tax, depreciation and amortisation (EBITDA) margins, even though there could be some short-term pressure.

As per the brokerage report, “we expect strong underlying EBITDA performance, with margin at 5.8%.”

Goldman Sachs on Paytm: Key monitorables going ahead

Looking ahead, investors are likely to focus on several factors that could influence Paytm’s performance. According to the brokerage report, attention will be on how the company offsets the impact of lower incentives, growth in its postpaid lending business, and any early signs of impact from the PPBL issue.

The brokerage also pointed to Paytm’s potential plans to relaunch its wallet business, which would require regulatory approval in the form of a Prepaid Payment Instrument (PPI) license from the Reserve Bank of India.

At the same time, there are external challenges as well. The brokerage has trimmed its revenue and earnings estimates slightly due to headwinds in travel-related services and slower credit card growth.

Disclaimer: Investment analysis and target prices featured here are based on reports from external brokerage houses and do not constitute an offer or solicitation by this publication. This stock is subject to significant regulatory developments and market volatility; please consult a SEBI-registered investment advisor before making any financial decisions. The information provided is for educational purposes and should not be treated as a direct buy, sell, or hold recommendation.

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