SEBI’s Nod To Paytm Money Opens New Avenues For The Fintech: Motilal Oswal

Day after Paytm’s parent One97 Communications said that its wholly-owned subsidiary Paytm Money, received approval from the SEBI to act as a research analyst, brokerage firm Motilal Oswal has said that this opens a new opportunity for the company to diversify into wealth management, thus, potentially unlocking a “new stream of fee-based income”.

Besides, the brokerage in its report also accounted for Paytm’s aggressive overseas expansion. It expects the company to gain traction in onboarding new customers and expand its MTU base, which will enable healthy cross-selling, while growth in the merchant business will remain the key profitability driver in the near term.

In a report released today, Motilal underlined its take on the impact that several recent developments can have on the company. Moreover, it maintained its ‘neutral’ rating for Paytm and gave it a price target (PT) of INR 870. The PT represents an 18% upside from Paytm’s closing price today of INR 736.25. 

It is pertinent to mention that the brokerage’s analysis comes a day after the union cabinet approved an incentive scheme for UPI transactions provided at the rate of 0.15% per transaction value for transactions up to INR 2,000 pertaining to the category of small merchants. 

The estimated outlay of the scheme, which is set at INR 1,500 Cr, has led to an outcry from the industry. Infibeam’s joint MD Vishwas Patel observed that the outlay for processing transactions to the entire ecosystem is just not going to be enough. 

“We were expecting the government incentive to be above INR 5,000 Cr, a little higher than last year’s incentive of INR 3,500 Cr, but this paltry INR 1,500 Cr is a grave injustice,” he said. 

Besides Motilal Oswal, brokerage Jefferies gave Paytm a ‘hold’ target along with a PT of INR 850. In its report, the brokerage reportedly noted that the government incentive of INR 1,500 crore for low-value UPI P2M transactions is negative for the company. 

Given that Paytm is already dealing with losses, the constricting allocation of UPI incentives is clearly not in its favour. This observation also triggered selling pressure among Paytm’s investors, with the share shedding 3.71% by the end of the day. During intraday trading, Paytm’s shares fell as much as 5.5%. 

However, the incentive outlay development has also led to speculations of the reintroduction of merchant discount rates (MDR). Taking into account such speculations, Motilal Oswal said that the potential introduction of MDR on UPI will be a significant boost to Paytm’s revenue and will incentivise the company to push for market share gains in the consumer payments. “The company may shift its focus towards expanding its market share in the consumer segment,” it said. 

This also comes at a time when Paytm has stepped up focus on the merchant’s side of the business, lender partnerships and regaining the UPI market share. 

On the financial front, the brokerage ascertained that a reduction in capex and depreciation expenses, along with control over its spends, could see Paytm deliver an adjusted EBITDA positive result for Q4 FY25 and an overall EBITDA profit for FY27.

The projection is in-line with Paytm founder Vijay Shekhar Sharma’s recent claims.  “I can tell you very happily that with the team and the effort in the business that we have done, we are clearly committed to delivering profit in the next quarter,” he recently said. 

Earlier, during its earning call for Q3 FY25, the company’s management outlined expectations to turn profitable on an adjusted EBITDA basis in one or two quarters. To get there, Sharma has maintained that Paytm will focus on payments, credit, and wealth management through the next two years.

While Paytm is eyeing a positive outlook for the near future, the company’s path forward became extremely rigorous after the RBI effectively sealed the fate of its banking arm last year over persistent compliance issues.

Over a year since the regulatory gavel struck Paytm, Motilal Oswal outlines that the company has been able to “successfully navigate” through the challenges while retaining most of its merchant base. 

“With 85% of GMV coming from merchants, Paytm maintains a robust market share in merchant business, though its UPI market share has moderated,” it added.