Bernstein predicts Paytm shares to rally by 23%, cites ‘several near-term catalysts'

Global brokerage firm Bernstein has assigned a target price of Rs 1,100 to
Paytm
, signalling a significant 23.4% upside potential for the stock from its Wednesday closing price. The firm maintained an "Outperform" rating on Paytm, citing several key catalysts expected to drive the stock higher in the near term.
In its analysis, Bernstein projects that Paytm's earnings per share (EPS) growth will follow a non-linear trajectory, supported by current revenue lines growing at a compound annual growth rate (CAGR) of around 20%, while indirect expenses are expected to grow at a more modest CAGR of 10%.
This, Bernstein highlights, could lead to an EPS of INR 70 by FY30E, bringing the stock price closer to the target of Rs 1,100.
Here's what Bernstein highlighted:
Base case
Non-linear EPS growth: Bernstein's analysis of Paytm's future growth is underpinned by a base case that assumes a CAGR of 20% in current revenue lines, with indirect expenses growing at around a 10% CAGR.
This would translate to a target EPS of INR 70 by FY30E, which supports the target price of INR 1,100. Bernstein expects several near-term catalysts to drive this potential upside.
Total Cost CAGR of 13%
Bernstein projects that direct costs for Paytm will grow at a CAGR of 16% (FY25-30E), while indirect expenses are anticipated to increase at a 10% CAGR. This is expected to result in a 22% revenue CAGR, aided by an increasing share of high-margin lending revenues.
Stable UPI market share and payments margin
Bernstein emphasises the stability of Paytm's Unified Payments Interface (UPI) market share, along with unchanged net payments margin (NPM). The brokerage believes that the potential rise in NPM from an increased share of UPI payments could offset the impact of a higher share of UPI payments in Paytm's payments mix.
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Loan disbursal growth
Bernstein forecasts that loan disbursal will grow to around 3.6x FY24 volume. This assumes that Buy Now Pay Later (BNPL) products do not revive, and the volume of personal and merchant loans disbursed on the platform will grow at a 35% CAGR between FY25E and FY30E, which will drive significant revenue for the company.
Improved Consumer MTUs
Bernstein expects a 15% CAGR in Monthly Transacting Users (MTUs) for Paytm, driven by improvements in consumer engagement and platform usability. The firm suggests that near-term catalysts could help the company grow MTUs, potentially benefiting from a revival of its Payment Aggregator (PA) license application.
Key risks
Despite the optimistic outlook, Bernstein also highlights a number of key risks that could impact Paytm's future trajectory. These include:
A possible return to a high operating expenditure (opex) growth trajectory, driven by increased competition in the market or the pursuit of "moonshot" projects
The inability to halt the decline in Paytm's market share in UPI payments, coupled with a potential deterioration in the company's loan distribution business
Regulatory changes that could further impact Paytm's operations, particularly any that would weaken its loan distribution business.
The options for bigger upside
Beyond the base case scenario, Bernstein identifies significant upside potential if Paytm can capitalise on additional opportunities. These include the potential revival of Paytm's BNPL product and approval for its Payment Aggregator (PA) license.
The brokerage firm also notes that the approval for the PA license could signal a higher probability of Paytm eventually obtaining an NBFC license, although it believes the probability of these "moonshot" options playing out remains low.
The shares of Paytm closed 3% higher at Rs 891.30 on the BSE on Wednesday.

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