Paytm's Parent Company Sees Stock Surge After UPI Approval

Shares of One97 Communications, the parent company of Paytm, witnessed a significant surge for the second consecutive session on Monday, hitting the upper circuit.

The stock soared by 18.50 points or 4.99%, reaching Rs 389.20, marking a total increase of 11% over two sessions. This rally comes in the wake of receiving approval from the National Payments Corporation of India (NPCI) to join the Unified Payments Interface (UPI) as a third-party application provider under the multi-bank model.

Investment firm Morgan Stanley has maintained its Equal Weight stance on the stock, with a target price of Rs 555. The firm views this development positively, aligning with expectations. Morgan Stanley is particularly interested in understanding the impact on Paytm’s business in February and the shift of Paytm Payment Bank’s operations to other banks.

Under the new arrangement, four banks – Axis Bank, HDFC Bank, State Bank of India, and YES Bank – will serve as Payment System Provider banks to One97 Communications. YES Bank will also act as a merchant acquiring bank for UPI merchants, as per a company filing on Thursday.

This transition aims to ensure the seamless continuation of UPI transactions and AutoPay mandates for existing users and merchants. NPCI has advised Paytm to swiftly migrate all existing handles and mandates to the new PSP banks. The approval of Third-Party Application Provider (TPAP) status signifies the resolution of the final regulatory challenge for a smooth transition, as highlighted by Jefferies.

Jefferies also noted a potential shift in Paytm’s business model towards pure payment service providers like PhonePe and Google Pay, due to the potential loss of a banking license. This shift may lead to closer collaborations with banks and other regulated entities in the future.