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With investors presuming that the worst of the regulatory crisis is behind for Vijay Shekhar Sharma, Paytm shares on Tuesday hit the 5% upper circuit limit for the third straight session at Rs 376.45 on BSE. In the last 3 days of non-stop rally, the stock is up 16%.

The interest in Paytm, which has been on a roller coaster ride ever since it was listed on stock exchanges on 18 November 2021, resurfaced following positive news flow coming in from RBI, ED and deal with Axis Bank.

While Jefferies has moved Paytm to its list of ‘Non-Rated’ stocks, Morgan Stanley has maintained an equal-weight rating with a target price of Rs 555.

Last week, RBI extended the ban by 15 days on Paytm Payments Bank’s key banking/wallet operations, except for nodal accounts. The regulator has further clarified that, in the case of merchants accepting payments using a Paytm QR code, Paytm soundbox, or Paytm POS terminal, services will not be disrupted (even post-mid-March 2024) if the linked account is with any other bank (except PPBL).

Overall, RBI’s actions appear to be limited to PPBL and not intended to disrupt the UPI payments and other functions of Paytm, Bernstein said while giving a bullish target price of Rs 600 with an outperform rating.

Paytm’s new partnership with Axis Bank for nodal accounts is also expected to provide continuity of settlements for merchants and minimal disruption for its customers.Another positive for Paytm is the report that the Enforcement Directorate (ED) has not found any violation under the Foreign Exchange Management Act (FEMA) during the inquiry of Paytm Payments Bank Limited transactions.Jefferies, however, wants to stay away from making a bet on Paytm till the regulatory clouds recede.

“In case of no incremental regulatory clampdown, there could be multiple scenarios for the business depending on user/merchant retention. We see positive and negative risks arising from user/merchant retention, revenue traction and cost controls. On the basis of merchant/user attrition to the tune of 10-30% and a hit to net revenues (adj. for payments interchange) of 20-45%, valuation could vary widely,” it said.

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