Bernstein: Paytm's Optimal Outcome is an Acquisition by a Bank or NBFC

Bernstein has suggested that a partnership with a bank could help Paytm, especially for banks aiming to create consumer-focused apps. This partnership would allow banks to tap into Paytm's customer base to promote non-bank products. Furthermore, Bernstein believes that a significant investment from a large corporate entity could accelerate Paytm's recovery and shield it from future regulatory challenges.

The brokerage firm sees an acquisition by a bank or a large non-banking financial company (NBFC) as the best path forward for Paytm. Such a move would not only enhance banks' offerings but also enable them to introduce new credit products through Paytm's platform, such as credit lines via UPI.

Bernstein also noted that a large corporate investment could aid Paytm's business revival and protect it from future regulatory risks. Large companies like Reliance Jio, Adani Group, and Tata Group are developing their own fintech businesses, and acquiring Paytm could significantly boost these efforts. Although there were earlier reports of Paytm considering a stake sale to the Adani Group, Paytm later denied these claims.

Despite its current challenges, Bernstein projects that Paytm could achieve profitability by the fiscal year 2026-27 (FY27). However, the firm suggests that by expanding its secured lending operations and capturing a small share of the merchant discount rate on UPI payments over INR 2,000, Paytm could reach profitability even earlier, potentially by FY26. Accelerating cost-cutting measures and reducing staff could further shorten this timeline.

Bernstein has set a price target of INR 600 per share for Paytm, reflecting a potential 5% increase from its recent closing price of INR 573.2 on the BSE as of Monday, August 19.

Paytm has faced significant challenges, particularly after the Reserve Bank of India (RBI) halted the operations of its payments bank arm earlier this year, leading to increased losses. In Q1 FY25, Paytm's losses surged by 134% year-on-year to INR 840.1 crore, with revenue from operations dropping 36% to INR 1,502 crore. Bernstein attributed these losses to the disruption in Paytm's banking operations and the government's reduction in its digital payments budget, which is expected to impact Paytm's revenue in the current fiscal year.