UBS raises Paytm stock price target to INR1,050 on expected profitability

UBS raised its price target on One 97 Communications (Paytm) to INR1,050 while maintaining a Neutral rating, citing expectations for positive Q1 profit after tax driven by cost focus and revenue momentum. Despite this, UBS lowered its FY25-27E GMV CAGR forecast to 26% due to a broader digital payment slowdown and noted continued weakness in customer additions and UPI market share, alongside lingering concerns about the payment aggregator license, tempering the re-rating potential from anticipated FY26 profitability.

Analysis

UBS has raised its price target on One 97 Communications (Paytm) to INR1,050 from INR1,000, while reaffirming a Neutral rating, reflecting a mixed outlook. The upward price target revision is predicated on the expectation that Paytm will report a positive profit after tax (PAT) in the first quarter, driven by sustained cost controls and sequential revenue momentum in its payments and financial services divisions. However, this optimism is counterbalanced by several concerns. UBS has lowered its gross merchandise value (GMV) compound annual growth rate forecast for Paytm for FY25-27 from 30% to 26%, citing a broader slowdown in India's digital payment sector. The analysis also points to persistent weakness in customer additions, with no material gain in UPI market share, and reduced net payment margin assumptions due to lower UPI incentive expectations. A significant overhang remains the unresolved status of the company's payment aggregator license. While the merchant loan and device businesses are expected to grow, the potential for a positive PAT in FY26 is viewed as the primary re-rating catalyst, especially given the stock's material discount to Indian internet peers.

Key Decisions for Investors

• Investors should weigh the near-term catalyst of potential profitability against the significant headwinds of slowing market growth and stagnant user acquisition, justifying the Neutral rating.
• The primary risk to monitor is the regulatory outcome of the payment aggregator license, as a negative decision would materially impact the business model.
• Consider the stock's valuation at a discount to peers as a potential long-term opportunity, but predicate any new positions on tangible evidence of market share gains and a confirmed turn to sustainable profitability in upcoming earnings reports.