Paytm vs SBI Card shares: Bernstein picks this payments biz stock, suggests 47% upside

Foreign broker-dealer Bernstein said it prefers One 97 Communications Ltd (Paytm) over SBI Cards and Payment Services Ltd (SBI Card) among the payment businesses, while suggesting an 'Outperform' rating on the former and 'Underperform' rating on the latter. Paytm may turn profitable this calendar year, which would to be an important milestone, it said.

Bernstein assigned a share price target of Rs 950 on Paytm, suggesting a 47 per cent potential upside. On Wednesday, Paytm shares jumped 3.29 per cent to Rs 672.50 on BSE. SBI Card shares were down 0.36 per cent at Rs 771 on BSE. Bernstein sees SBI Card shares at Rs 640, suggesting a potential downside of 17 per cent downside over the prevailing prices.

Bernstein said Paytm has seen a sharp correction in the last 1-2 months following the company’s decision to trim growth in its BNPL product. It said stable asset quality in the BNPL portfolio, as the portfolio is now cut down by 40-50 per cent would provide a solid proof of the asset quality of the underlying portfolio.

"A significant deterioration would bring back questions on the quality of Paytm’s borrowers," it said.

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Besides, the brokerage expects the immediate impact of the BNPL slowdown to be minimal. It expects the company to turn profitable this calendar year, even as it believes regulatory risks remains the biggest risks for Paytm.

Any development, Bernstein said, that hints at a more favourable regulatory outcomes -- Payment aggregator license, removal of embargo on Paytm payments bank, NBFC licence, would be a big catalyst for the stock.

On SBI Card, Bernstein sees more pain before any gain. The brokerage said SBI Card had seen a deterioration in portfolio asset quality in the last few quarters and consensus estimates assumes a continuation of credit costs near to QFY24 levels but no further deterioration.  Any further deterioration, it said, will be a key downside risk.

Besides, "with the recent risk weight increase and asset quality concerns causing a slowdown in the growth of small ticket loans from various new entrants (fintechs/NBFCs), the competitive outlook looks better for credit cards. Whether this leads to a revival in the revolver balances remains a key controversy for the stock," it said.

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