One97 Communications Ltd, the parent company of Paytm, announced on Friday that its wholly-owned subsidiary, Paytm Payments Services Ltd (PPSL), has secured in-principle authorization from the Reserve Bank of India (RBI). This crucial approval allows PPSL to establish and operate a payment system for issuing and managing Prepaid Payment Instruments (PPIs) across India.
RBI Authorization Paves Way for Wallet Services
The authorization, granted under the Payment and Settlement Systems Act, 2007, permits PPSL to offer various prepaid instruments, such as digital wallets, to its customers once final approval is obtained. This development follows PPSL's application for a wallet license, which was previously disclosed in Paytm's Q1 FY27 earnings release.
The regulatory filing from One97 Communications specified that the in-principle nod is subject to PPSL adhering to the RBI Master Directions on Prepaid Payment Instruments, issued on August 27, 2021, and any subsequent updates.
Market Reaction and Financial Performance
Following the announcement, Paytm's shares experienced a modest uptick, trading up 0.26 percent at Rs 1,928.05 during Friday's trading session.
In its Q2 FY27 earnings report, Paytm showcased robust financial growth. The company reported a 28 percent year-on-year (YoY) increase in revenue, reaching Rs 2,648 crore for the September quarter. EBITDA surged by 90 percent YoY, with the EBITDA margin hitting 10 percent, marking its first entry into double-digit figures. Net profit saw a nearly tenfold jump, climbing to Rs 225 crore.
Analyst Outlook
Despite strong headline numbers, some analysts noted areas for improvement. Morgan Stanley observed that the company's contribution margin of 55.9 percent declined by 271 basis points YoY, falling short of its 57.7 percent estimate. Direct costs also exceeded the brokerage's forecast by 10 percent, and the EBITDA margin of 10.2 percent slightly missed its 10.7 percent projection.
Brokerage firms have offered varied ratings and target prices:
- Goldman Sachs: 'Buy' rating with a target price of Rs 2,010.
- Bernstein: 'Outperform' rating with a target price of Rs 2,200.
- Citi: 'Buy' rating with a target price of Rs 1,940.
- Macquarie: 'Outperform' rating with a target price of Rs 2,025.
- UBS: 'Neutral' rating with a target price of Rs 1,340.
- Morgan Stanley: 'Hold' rating with a target price of Rs 1,450.
The in-principle authorization for prepaid payment instruments is a significant regulatory milestone for Paytm's subsidiary, signaling potential for expanded digital payment offerings in the Indian market.