Paytm share price target cut by Jefferies but 'buy' rating maintained; Here's why

Brokerage firm Jefferies has cut its price target on One97 Communications, parent company of payments aggregator Paytm to ₹1,450 from ₹1,600 in its latest note on Tuesday, January 27.

The revised price target implies an upside potential of 25% from current levels.

Paytm shares fell over 8% on Friday after there has been no update on the Payments Infrastructure Development Fund (PIDF) being extended by the Reserve Bank of India, after its deadline ended on December 31.

In response, Paytm had highlighted that even if the scheme is not extended, it will mitigate this impact by other revenue sources.

For the first half of the current financial year, Paytm earned ₹128 crore as incentive through this scheme, which was launched in January 2021 to promote the deployment of payment acceptance infrastructure, such as PoS terminals and QR codes, particularly in tier-3 to tier-6 towns. That figure contributed to 46% of Paytm's adjusted Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA).

Jefferies had projected this incentive figure to reach ₹280 crore in financial year 2027 and financial year 2028, which it has now removed from its estimates and partly compensated it with a hike in device subscription fee by 6% to 7% from 3% earlier, and some cost controls.

"It can also control opex to manage profit impact, especially sales staff or incentives in the relevant markets," Jefferies wrote in its note.

This will result in Paytm's Adjusted EBITDA declining by 8% to 14%, thereby resulting in a cut to the price target.

However, despite these headwinds, Jefferies has maintained its "buy" recommendation on Paytm, as the brokerage believes that the business fundamentals continue to remain strong with new revenue lines opening up.

Shares of Paytm, after the 8% fall on Friday to ₹1,155, are down 16% from their recent 52-week high level of ₹1,381.