Target: ₹300

CMP: ₹341.80

We initiate coverage on One97 Communications (OCL-Paytm) with Reduce. Following the recent regulatory salvo, the stock has corrected about 55 per cent (about 80 per cent from its post-IPO peak in Nov-21), echoing the expected business/revenue dislocation in the Payments/Financial Services verticals; this was aggravated by high KMP attrition.

We believe Paytm’s path to profitability will be arduous, mainly due to higher operational burn in Payments, given absence of the high-MDR Wallet and rising share of low MDR UPI business; its jeopardised monetisation strategy, with sharp slowdown in Financial Services revenue amid rising asset quality and partner attrition/business scale-down risks.

Paytm is likely to see significant business disruption in FY25; recuperation would commence thereafter, subject to no business/regulatory hurdles ahead. It would turn EBITDA-positive not before FY28 and net profit-positive only by FY29. .

Our bull-case fair value (FV) is ₹470/share and bear-case FV is ₹140/share.

Key risks: Paytm has already adopted a calibrated growth approach in the Post-paid business as well as the PL business due to regulatory intervention, rising asset quality noise, and partner concerns; but similar action in the merchant lending business could further hurt the revenue momentum and profitability.

The company is reportedly witnessing employee attrition across business segments.