In a recent analysis, equity research firm Bernstein has set an ambitious target price of Rs 600 per share for Paytm, forecasting that the fintech giant will achieve profitability by the fiscal year 2026-27. As Paytm, operating under its parent company One97 Communications, navigates its path to financial success, Bernstein has highlighted potential strategic options that could accelerate this process, including a potential acquisition by a bank or a large non-banking finance company (NBFC).
Banks Eyeing Paytm for Strategic Expansion
Bernstein’s report emphasizes that banks such as HDFC and ICICI Bank, which are actively developing consumer-focused applications and credit products, could see significant value in acquiring Paytm. The fintech’s expansive user base presents a valuable opportunity for these banks to quickly boost their customer base and enhance their product offerings. “A partnership with a bank could be the optimal scenario for Paytm, leveraging its established platform for innovative financial products,” the report suggests.
The Case for Corporate Investment
Apart from banks, Bernstein also proposes that a substantial investment from a major corporate house could significantly enhance Paytm’s prospects. Such an injection of capital would not only provide a buffer against regulatory challenges but also position the investor to tap into the burgeoning financial services sector. With conglomerates like Reliance Jio, the Adani Group, and the Tata Group increasingly venturing into fintech, Paytm could emerge as an attractive acquisition target for these firms seeking to bolster their financial services portfolio.
Recent Regulatory Impacts and Budget Cuts
Despite its potential, Paytm has faced significant challenges in recent times. Earlier this year, regulatory restrictions were imposed on its associate entity, Paytm Payments Bank, which have directly impacted the company’s financial performance. Furthermore, cuts in the government’s budgetary allocation for digital payments—reduced from Rs 3,500 crore to Rs 1,441 crore—are expected to affect Paytm’s revenue streams in the current fiscal year.
Strategies for Paytm’s Solo Success
If Paytm opts to pursue profitability independently, Bernstein outlines three critical factors for success. Firstly, the company must accelerate the scaling of its secured lending products. Secondly, achieving an 8-10 basis point share of the merchant discount rate on UPI payments exceeding Rs 2,000 could help Paytm reach profitability by the third quarter of fiscal year 2025-26. Lastly, optimizing operational costs and reducing staff could further expedite the path to breakeven.
Acquisition Opportunities and Market Trends
Ultimately, Bernstein’s analysis suggests that an acquisition by a bank or NBFC presents the most promising outcome for Paytm. For banks, Paytm’s extensive user base could be instrumental in cross-selling non-banking products and introducing innovative credit solutions through UPI. Conversely, an NBFC acquisition could open doors to offering small-ticket loans that banks currently do not provide, though the viability of this segment remains under scrutiny in the current market environment.