Bernstein, a brokerage firm, has reportedly outlined potential scenarios for Paytm’s future, including the possibility of an acquisition and the company’s path to profitability.
Acquisition by Bank or NBFC as the Best Scenario
Bernstein suggests that the “best scenario” for Paytm would involve its acquisition by a bank or a large non-banking finance company (NBFC). This move could benefit banks aiming to build consumer-focused apps by leveraging Paytm’s extensive customer base for cross-selling non-bank products. Furthermore, it would enable banks to enhance their product offerings and introduce innovative credit products through payment channels like credit lines on UPI.
Investment from a Major Corporate House
Alternatively, a substantial investment from a major corporate house could also help Paytm revive its business and navigate regulatory challenges. Several large firms, such as Reliance Jio, the Adani Group, and the Tata Group, are developing their own fintech businesses, and acquiring Paytm could significantly accelerate their efforts.
Paytm’s Potential to Achieve Profitability by FY27
Bernstein also projects that Paytm, in its current state, could achieve profitability by the fiscal year 2026-27 (FY27). However, the brokerage firm highlights that rapidly expanding the secured lending business and securing a share of the merchant discount rate on UPI payments above INR 2,000 could accelerate profitability to FY26. Additionally, cost-cutting measures and staff reductions could further expedite the timeline.
Challenges and Future Outlook
Paytm faced a significant setback earlier this year when the Reserve Bank of India (RBI) restricted its payments bank arm’s business activities. This resulted in operational disruptions and mounting losses. In Q1 FY25, Paytm’s losses surged 134% year-on-year to INR 840.1 Cr, while revenue from operations declined 36% to INR 1,502 Cr.
Bernstein attributes these losses to the impact on Paytm’s banking operations and the government’s reduced budgetary allocation for digital payments. The Centre recently decreased the allocation to INR 1,441 Cr from the INR 3,500 Cr announced in the interim budget.
Despite these challenges, Bernstein has set a price target of INR 600 apiece for Paytm shares, indicating a potential upside of nearly 5% from its recent closing price. The future of Paytm remains uncertain, but the potential for acquisition or organic growth towards profitability offers a glimmer of hope for the troubled fintech major.
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