Buy One 97 Communications For A Target Price of Rs1,285: ICICI Securities

In a notification published March 11th, the Reserve Bank of India (RBI) asked Paytm Payments Bank (PPBL), an affiliate of One 97 Communications (OCL or Paytm), to temporarily suspend enrolling of new customers. According to the RBI letter, there are certain significant supervisory issues at Paytm Payments Bank. Following the uncertainty, ICICI Securities has initiated a buy call on the stock with a target price of Rs1,285.

Investment rationale for One97 Communications

As per the brokerage "RBI's directive will also remain an overhang till concerns are appropriately addressed. PPBL is taking immediate steps, including appointment of a reputed external auditor, to conduct a comprehensive audit of its IT systems and remains committed to working with the regulator to address their concerns. However, in this context, we recall recent instances of embargo on a leading bank, which stayed in place for 8-15 months."

"New users can however sign up on the Paytm app, and transact by: a) creating UPI handles and linking them to their bank accounts, or b) by using third-party payment instruments for transactions on the Paytm app. Existing customers of PPBL can continue to use all banking and payment services without interruption. Existing users of Paytm UPI, Paytm Wallet, Paytm FASTag, and bank accounts can continue to use these instruments, including debit cards and net banking, for payments. Also, the RBI directive does not impact the services Paytm provides in partnership with other financial services institutions," says ICICI Securities.

"Reference recent instances of embargo on a leading bank, it took 8 months to partially lift the restrictions and almost 15 months to wholly lift the same," claims the brokerage.

Buy for a target price of Rs1,285

ICICI Securities has noted "We were estimating Paytm's consumer base to grow by 10% in FY23E and monthly transacting users to increase at >25% run-rate. Company will have to increase its efforts to enhance engagement with the existing user base to offset the adverse impact of embargo on new users. Now, expecting moderation in onboarding of new users and the adverse impact on incremental payment revenue (as wallets are key monetisable payment instrument), we revise our target price to Rs1,285 (earlier Rs1,352). Also, it may defer PPBL's plan to apply for conversion into small finance bank (though eligible to apply from May'22). Maintain 'BUY'."

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.