Paytm share, RBI nod: Buy stock, says JM Financial as it sets target price

The Reserve Bank of India (RBI) has granted in-principle approval to Paytm Payments Services Ltd. (PPSL) to operate as an online payment aggregator under the Payment and Settlement Systems Act, 2007. This move lifts the ban on onboarding new merchants, which has been in place since November 2022. The approval is a significant milestone for Paytm, enhancing its capability to expand its merchant base and solidify its market position.

JM Financial has expressed optimism regarding this regulatory clearance, reiterating a 'Buy' rating on Paytm stock. The brokerage has set a target price of Rs 1,320 for June 2026, projecting a potential 17.9% upside. The approval could be a precursor to further regulatory clearances, which may positively impact Paytm's financial prospects by aligning it with regulatory expectations.

The approval follows PPSL's reapplication in September 2024, after addressing compliance gaps in foreign direct investment norms, which were reasons for the initial rejection. This approval coincides with Ant Financial's exit from Paytm, removing Chinese shareholding from its ownership structure. These strategic changes likely played a critical role in facilitating the RBI's decision.

Since the RBI's disruption in January 2024, investors have been cautious about Paytm. However, this regulatory nod indicates satisfaction from the RBI regarding compliance adjustments made by Paytm. "While there is no certainty, this does enhance the probability of Paytm getting regulatory approval to operate Paytm wallet with PPBL," said JM Financial. This development could bolster Paytm's market position and investor confidence.

The approval occurs in the context of increased regulation for payment aggregators and gateways. Previously, these entities operated in partnership with banks without direct oversight. The RBI’s regulation aims to ensure control over transaction processes and merchant due diligence, mitigating money laundering risks. This framework is expected to bring more transparency and security to the digital payments ecosystem.

Paytm achieved PAT profitability in Q1FY26, due to improvements in contribution margins and controlled expenses. JM Financial values Paytm at 40x June 2027 adjusted EBITDA of INR 18.5bn, indicating potential growth. Other regulatory opportunities like UPI monetisation could further boost EBITDA estimates by 25-30%. Paytm's financial performance underlines its ability to leverage regulatory approvals for sustained growth.

This approval not only marks progress for Paytm but also reflects broader implications for the digital payments industry as regulatory bodies tighten oversight. This could pave the way for similar entities aiming for compliance and operational expansion. The evolving regulatory landscape requires companies to adapt quickly to benefit the most.

While the context does not specifically mention competitors like PhonePe, Google Pay, and Amazon Pay, it is implied that major players in the industry must navigate the changing regulatory environment as Paytm has. Paytm's recent approval positions it favourably for future market opportunities and potential strategic advancements.