Citi, Dolat Capital say RBI letter asking Paytm Payment Services to resubmit PA license to have no impact on Paytm, maintain ‘Buy’ rating

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Citi, Dolat Capital say RBI letter asking Paytm Payment Services to resubmit PA license to have no impact on Paytm, maintain ‘Buy’ rating
  • Paytm already has leading ecom players onboard — so growth here is more led by volume growth in existing customers

A day after the Reserve Bank of India (RBI) directed Paytm Payment Services Limited (PPSL), a subsidiary of Paytm, to reapply for a Payment Aggregator license in 120 days, analysts at have said that the move will not have any impact on Paytm and added that it expects the company to deliver high growth from its existing businesses. 

Sharing their view, analysts at Dolat Capital said, “Since observations pertain primarily to submitting additional data, we do not expect any impact from this notice, and expect Paytm to continue BAU and deliver high growth from its existing businesses.” 

“This segment accounts ~12% of rev and there as well all leading ecom players are already onboard – so growth here is more led by Volume growth in existing customers),” the brokerage added. Analysts at Dolat Capital remain bullish on Paytm and maintain a ‘Buy’ rating with a target price of Rs 1,400.

Analysts at brokerage firm Citi also indicated that they expect limited loss of market share in the online payments: payment gateway (PG) business for Paytm as existing merchant operations will not be impacted. 

They further outlined in their report that RBI’s earlier restriction on Paytm Payments Bank Limited (PPBL) from onboarding new wallet customers hasn’t impacted the business significantly. Based on this, the analysts remain optimistic about Paytm’s growth and maintain a ‘Buy’ rating with a target price of Rs 1,055. 

The earlier restrictions didn’t impinge on Paytm’s user acquisitions (MTU growth has continued through UPI payments business even as Paytm can’t up-sell the new customers into the wallet product).

Multiple brokerages including the likes of Goldman Sachs, BoFA, Citi, Morgan Stanley, JP Morgan and ICICI Securities remain confident about Paytm’s future growth potential in view of its strong financial performance over the last few quarters across key segments. 

Sharing an update on the PA license on November 26, 2022, Paytm said in an exchange filing that the RBI has asked its 100% subsidiary PPSL to take some steps and then reapply for the license within 120 days. The RBI has asked Paytm to a) Seek necessary approval for past downward investment from the Company into PPS to comply with FDI Guidelines b) Not onboard new online merchants.

Paytm also clarified that this will have no material impact on its business and revenues, since the communication from RBI is only related to onboarding of new online merchants. “We can continue to onboard new offline merchants and offer them payment services including All-in-One QR, Soundbox, Card Machines, etc. Similarly, PPSL can continue to do business with existing online merchants, for whom the services will remain unaffected,” Paytm said.

“We are hopeful of receiving the necessary approvals in a timely manner and resubmitting the application,” the company added.

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