Paytm share price outlook: Is the bottom in?

The recent performance of Paytm's shares has garnered significant attention. With the PAYTM share price down more than 38% in 2024, it has prompted investors and analysts to assess whether the stock has reached a potential bottom or if further fluctuations are on the horizon.

Why Paytm shares are falling

The weak investor sentiment in One97 Communications Limited, the parent firm of digital payments firm Paytm, is based on the headwinds Paytm's business has faced. 

One significant factor impacting its performance was the news that the Reserve Bank of India (RBI) had put certain restrictions on Paytm Payments Bank. This restricted it from conducting certain operations following a system audit report and the subsequent compliance validation report of external auditors.

Paytm Payments Bank was told it could not accept further credits into its customer accounts and wallets after March 15, 2024.

However, Paytm recently received some good news. Bloomberg said last week that the company had won approval to become a consumer digital payments platform. This should help the company continue the bulk of its business despite its banking affiliate being wound down.

The publication explained that Paytm has, until now, operated under a license connected to its affiliate Paytm Payments Bank, which it doesn’t control but which has run its digital wallets and payments traffic. 

However, the bank had to finish its business after Friday following regulatory orders that meant it had to stop accepting new deposits because of a continued breach of rules.

Paytm needed to arrange for other banks to take over the tasks handled by its former main partner. A deal last month resulted in the company replacing Paytm Payments Bank with Axis as the backbone for its merchant payments settlement business.

Paytm share price forecast

Analysts weighed in on the February issues. Brokerage Macquarie said the payments firm faces "an arduous task" to move customers to other banks by the central bank-set February-end deadline.

As a result, they believed Paytm faced a "serious risk of exodus of customers." They also said lending partners could re-evaluate their relationship with the firm.

JPMorgan downgraded One 97 Communications to underweight from Neutral in a note in early February, saying that the RBI order “materially impacts near-term growth, profitability.”

However, PAYTM rose 5% Monday after Yes Securities upgraded the stock to Buy from Neutral, raising the target price to ₹505 per share from ₹350.

The brokerage highlighted a number of key reasons behind the upgrade, such as Paytm’s decreasing dependence on the wallet business for revenue and the well-contained client loss due to reputational damage.

Last month, Goldman Sachs analysts cut their price target on PAYTM shares to ₹450 from ₹860, citing “potential payments market share loss and slowdown in lending in the near term as a consequence of the recent RBI directive.”

“There are still a number of unknowns when assessing the earnings impact on Paytm, with the most important in our view being whether Paytm will be allowed a one-time migration of UPI handles to another bank account, a segment that makes up the majority of the company's MTUs,” analysts said.

They see Paytm share price trading in the range of ₹240 to ₹750.