Acquisition By Bank Or NBFC Best Scenario For Paytm: Bernstein

Brokerage firm Bernstein reportedly believes that the “best scenario” for Paytm would be an acquisition by a bank or a large non-banking finance company (NBFC).

In a note accessed by Economic Times, the brokerage said that such a partnership may help banks, looking to build consumer-focussed apps, leverage Paytm’s customer base to cross-sell non-bank products. 

Besides, Bernstein said that such a move would allow banks to offer superior products to their existing users and launch innovative credit products via payment channels like credit lines on UPI through Paytm’s distribution base.

Separately, Bernstein said that a “large investment for a sizable stake from a major corporate house” would likely enable Paytm to revive its business faster and stave off “future regulatory shocks”.

From Reliance Jio to the Adani Group and the Tata Group, large firms are building fintech businesses in-house. Such efforts can get a major boost through the acquisition of Paytm, added Bernstein.

Curiously, this comes months after reports surfaced that Paytm was mulling a stake sale to the Adani Group. However, the fintech major later denied all such reports.

Meanwhile, the brokerage firm also projected that the troubled fintech major “in its current form” was well-poised to achieve profitability by fiscal year 2026-27 (FY27). 

However, the brokerage firm reportedly said that rapidly scaling up the secured lending business and getting an 8-10 basis point share of the merchant discount rate on UPI payments above INR 2,000 would help it drive profitability even faster by FY26. It added that cutting costs “faster” and reducing staff strength will narrow the profitability timeline even further.

Bernstein also set a price target (PT) of INR 600 apiece for Paytm shares, an upside of nearly 5% from the stock’s last close of INR 573.2 on the BSE on Monday (August 19).

The fintech major was thrusted into a major crisis earlier this year after the Reserve Bank of India (RBI) barred its profitable payments bank arm from undertaking any business activities. As a result, the company’s operations were hit and the losses have been rising steadily ever since. 

For the second consecutive crisis-hit quarter of Q1 FY25, Paytm’s losses soared 134% year-on-year to INR 840.1 Cr. Meanwhile, revenue from operations declined 36% to INR 1,502 Cr in the period under review from INR 2,342 Cr in the corresponding quarter last year.

Bernstein said the losses reported by the company were a direct result of the business impact on its banking operations, adding that the government trimming its budgetary outlay for digital payments is also bound to impact Paytm’s revenue sources in the current fiscal.

The Centre recently reduced the budgetary allocation for digital payments in the full Budget to INR 1,441 Cr as against INR 3,500 Cr announced in the interim budget in February.