Paytm, the digital payments giant, has seen its share price skyrocket by 10% on the back of rumors that the Adani Group is considering a major investment in the company. Investors are eagerly awaiting official confirmation of this potential deal, which could significantly boost Paytm’s growth prospects.
The recent rally in Paytm’s stock price comes after a prolonged period of decline, largely due to regulatory hurdles faced by its subsidiary, Paytm Payments Bank. However, the tide seems to be turning, with the company’s shares exhibiting a remarkable turnaround in the past month.
What’s Driving the Surge in Paytm Share Price?
The initial surge in Paytm’s share price was fueled by speculation of a potential investment by the Adani Group. Reports surfaced on May 29, 2024, suggesting that Adani and Paytm founder Vijay Shekhar Sharma met to discuss a stake purchase in One 97 Communications, the parent company of Paytm.
This news sparked excitement among investors, with the prospect of Adani’s involvement seen as a positive sign for Paytm’s future. However, the rumors were initially dismissed as unfounded, leading to a temporary decline in sentiment.
Paytm’s Recent Earnings and Growth Prospects
Despite the regulatory challenges, Paytm has continued to demonstrate strong growth in its core business. In its recent Q1 FY25 earnings report, the company reported a 43% year-over-year increase in revenue and a significant reduction in losses.
Paytm expects further improvement in its financial performance from Q2 FY25 onwards, based on the stabilization and growth of its consumer and merchant base starting from April/May 2024. Additionally, the company has taken prudent measures in line with regulatory guidance, which are expected to result in a temporary Rs 0.8-1 billion EBITDA impact in Q1 FY25.
Adani’s Potential Investment and Its Impact
The renewed rumors of Adani’s interest in Paytm have reignited investor enthusiasm. The Adani Group’s involvement could provide a significant boost to Paytm’s growth plans, as the conglomerate has a strong presence in various sectors, including infrastructure, energy, and logistics.
Analysts believe that an Adani investment could help Paytm expand its reach, particularly in areas where the Adani Group has a strong foothold. This could lead to synergies and cross-selling opportunities, ultimately driving Paytm’s revenue growth and profitability.
Regulatory Hurdles and Paytm’s Response
Paytm has faced several regulatory hurdles in recent times, including the RBI ban on its subsidiary, Paytm Payments Bank, from onboarding new customers. However, the company has taken proactive steps to address these challenges.
One such measure is Paytm’s collaboration with Axis Bank for nodal accounts, which is expected to ensure uninterrupted settlements for merchants and minimal disruption for customers. Additionally, the Enforcement Directorate (ED) has found no violation of the Foreign Exchange Management Act (FEMA) by Paytm.
Analyst Opinions and Price Targets
Despite the recent volatility, most analysts remain optimistic about Paytm’s long-term prospects. Morgan Stanley, which acquired a 0.8% stake in Paytm for Rs 244 crore during the regulatory crisis, has maintained an equal-weight rating on the stock with a target price of Rs 555.
Bernstein has also upheld an outperform rating for One 97 Communications, setting a target price of Rs 600. The brokerage expects that the company will effectively implement operational adjustments to reduce reliance on Paytm Payments Bank, with minimal long-term impact on its overall business.
