Paytm shares gain 3% after Investec cites long-term prospects for 'buy' rating

Shares of One97 Communications Ltd., the parent company of payments aggregator Paytm, are trading higher by 3% on Friday, January 23, marking gains for the second consecutive session.

Brokerage firm Investec has initiated coverage on Paytm with a 'Buy' rating and a price target of ₹1,550 per share, implying a potential upside of 23% from current levels.

Investec said that Paytm's deep tech capabilities and embedded merchant relationships provide long-term pricing power and create high switching costs.

With most of its merchant acquisition already in place and a digital-first model, the company enjoys substantial operating leverage.

Scale efficiencies, coupled with contributions from higher-margin credit-adjacent businesses, are expected to support margin expansion.

The brokerage forecasts a 23% net revenue CAGR for FY26-28, with EBITDA margin potentially rising to 24% by FY28 from 8% in H1FY26.

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Meanwhile, domestic mutual funds trimmed their stake in Paytm during the October-December quarter, according to the latest shareholding pattern filed on the BSE.

This is the first instance of mutual funds reducing their holding since the company's November 2021 IPO, after a period of consistent increases.

Mutual fund ownership now stands at 14.96% at the end of December, down from 16.25% at the end of September.

On the technical side, shares of Paytm are near 'oversold' territory, with a Relative Strength Index (RSI) of 43. (An RSI below 30 indicates a stock is oversold.)

Among the 21 analysts covering Paytm, 14 have a 'Buy' rating, six have a 'Hold', and one has a 'Sell'.

Paytm shares are trading 3.04% higher at ₹1,298.80, still 40% below their IPO price of ₹2,150.