Paytm shares get their highest price target from Jefferies after recent outperformance

Shares of One 97 Communications Ltd., the parent company of payments aggregator Paytm, are in focus on Monday, September 22, as it received its highest price target on the street of ₹1,420 per share.

Brokerage firm Jefferies retained its "buy" rating on the stock and has increased its price target by 3.6% from ₹1,370 per share to ₹1,420 apiece. This implies an upside potential of 21% from its previous closing price of ₹1,173 per share.

Jefferies has raised its earnings before interest, taxes, depreciation and amortisation (EBITDA) estimates by 9% - 14%, owing to the company's lower operating expenditure.

Jefferies said Paytm, at its management meet, said that payment platforms have come a long way and are now delivering profits. Paytm reported a net profit of ₹122.5 crore in the June quarter, for the first time since its listing, aided by higher other income. In the same quarter last fiscal, it had reported a net loss of ₹839 crore

Its merchant franchise is strong at 45 million and lending business also continues to perform well, the management meet highlighted.

The management finds new opportunities in the recently-launched postpaid-on-UPI and wealth segments. If the merchant discount rate (MDR) on UPI is permitted, it may be only on larger merchants, it added.

However, a few months ago, the Finance Ministry dismissed reports of the possible introduction of MDR — a fee paid by merchants to banks or payment service providers every time a customer makes a digital payment with a debit/credit card or UPI — on transactions.

On the flip side, Morgan Stanley has an "equalweight" rating on the stock with a price target of ₹1,175.

Of the 18 analysts that have coverage on Paytm, nine have a "buy" rating, five have a "hold" rating and four have a "sell" rating.

Paytm shares ended the previous session 4.6% lower. The stock has gained 53.3% in the last six months, but remains below its IPO price of ₹2,150 per share.

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