Paytm Shares Drop 2% After PwC Exits Paytm Payments Services; BofA, Dolat Capital Sees 22-50% Rise, Here's Why

The share price of Paytm took a U-Turn on Tuesday and dipped by nearly 3% on BSE after Price Waterhouse (PwC) resigned officially as Statutory Auditors from its subsidiary Paytm Payments Services (PPSL). It needs to be noted that PWC's tenure has completed and Paytm had already informed the exchanges about the appointment of statutory auditors. However, this is a pullback in the stock from its previous 7% gains after top boss Vijay Shekhar Sharma agreed with China's Ant Financial to buy its 10.30% stake in the company. Despite the latest bearish tone, brokerages like BofA and Dolat Capital are optimistic about Paytm shares especially after the founder's stake purchase deal and expect the stock to rise in the range of 22% to nearly 50%.

At the time of writing, on BSE, Paytm shares traded at Rs 833.30 apiece, down by Rs 17.5 or 2.05% on BSE. The stock has dipped by at least 2.8% overall with an intraday low of Rs 827.05 apiece.

In its regulatory filing, Paytm said, "Price Waterhouse Chartered Accountants LLP... Statutory Auditors of material subsidiary i.e. Paytm Payments Services Limited ("PPSL") have resigned with effect from August 07, 2023."

"The Statutory Auditors have not raised any concern or issue. The Board of Directors of PPSL have noted their resignation and placed on record its appreciation to M/s Price Waterhouse Chartered Accountants LLP for their contribution," Paytm added.

Following the exit of PwC, Paytm appointed S.R. Batliboi & Associates LLP as the Statutory Auditors.

On Monday, Paytm shares ended at Rs 850.75 apiece, up by 6.95% on BSE after its MD and CEO Vijay Shekhar Sharma executed an agreement to buy a 10.30% stake in Paytm from Antfin through an off-market transfer. Post the deal, Sharma's shareholding in Paytm (direct and indirect) will increase to 19.42%, whereas Antfin's shareholding will reduce to 13.5%.

The founder's deal of a 10.30% stake is seen as positive by brokerages.

In its latest report, BofA Securities said, "We consider this announcement to be positive as it removes an overhang on the stock from the risk that Antfin in future may look to reduce its stake leading to more supply. Furthermore, Sharma buying the stake at Friday's close indicates his confidence in the story with a "skin in the game" approach show. This event also reduces risk that some other strategic investor coming who would have a major stake similar to that of Sharma."

BofA added, "We believe a Chinese shareholder (Antfin) ceasing to be the largest shareholder, would also directionally be positive for the company fundamentals. We note that in Nov-22, Reserve Bank of India (RBI) declined Paytm Payments Services Limited's (PPSL) application to operate as a payment aggregator and it gave it 120 days to reapply for the license. Until it gets an approval, the company, which is a wholly owned subsidiary of Paytm, has been asked to not onboard new online merchants. As per media, this was to give PPSL time to comply with foreign direct investment (FDI) guidelines. We now don't expect such concerns going ahead. Maintain Buy on Paytm on favorable risk-reward."

Hence, BofA's price target for Paytm is Rs 1,020 ahead, indicating nearly 22% from the current market price.

Similarly, Rahul Jain, an analyst from Dolat Capital, believes it a positive move and clears off certain overhang and maintains a 'buy' rating with target price at Rs 1,250 apiece. "This also speaks volumes about Antfin's belief in Paytm as they are supporting out of way with no commercial upfront," the brokerage firm added.

Taking into consideration Dolat's target price, the fintech giant's stock price has a potential upside of nearly 50% going forward.

This transaction by Paytm would possibly imply faster resolutions around Paytm Payments Services Ltd wherein it is not allowed to onboard new online merchants, Dolat Capital said in a note. "This would reduce the risk of any hostile transaction as now VSS would be the largest shareholder," it added.

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