Paytm’s latest move is a negative for stock, Bernstein says, but remains bullish

Shares of One97 Communications Ltd., the parent company of payments aggregator Paytm, will continue to remain in focus during Tuesday’s trading session. The stock gained 7% on Monday after the board of its subsidiary, Paytm Cloud Technologies, approved an investment of $1 million (Rs 8.7 crore) in Seven Technology LLC, the parent company of Brazilian embedded finance startup Dinie.

Global brokerage firm Bernstein has upgraded Paytm to ‘Outperform’ with a price target of Rs 1,100 per share, while also expressing concerns over the acquisition of the Brazil-based embedded finance startup.

Paytm will acquire a 25% stake in the Brazilian embedded finance startup. However, Bernstein views this acquisition as a negative development.

“This development is negative for a business that has yet to turn profitable in its home market,” the brokerage said.
Bernstein wrote in its note that the idea of going after newer and shinier markets raises questions about this assumption.

“The company’s ability to stay focused on a large and attractive market is crucial, but this space is becoming increasingly competitive,” Bernstein said.

Paytm remained a loss-making position during the December quarter, although the loss narrowed on a year-on-year basis.

The company reported a solid beat against expectations in Q3 adjusted EBITDA, primarily driven by lower corporate overheads. However, the net payment margin was slightly below estimates.

Out of the 19 analysts that have coverage on Paytm, nine of them have a ‘Buy’ rating, six say ‘Hold’ and four of them have a ‘Sell’ rating on the stock.

Shares of Paytm settled 3.75% higher on Monday at ₹771. The stock has corrected 64% from its IPO price of ₹2,150.