2024 Review: Paytm emerges as top turnaround stock, rockets 220% from all-time low | Stock Market News

Some stocks exhibit a remarkable ability to bounce back after long periods of downturns, showcasing their resilience and strength. One such standout performer of 2024 is One 97 Communications, the parent company of Paytm, which has made an impressive comeback in recent months.

After plunging to an all-time low in May, Paytm’s stock staged a stunning rally, reaching a three-year high by December. This turnaround reflects a mix of intense selling pressure earlier in the year and a surge of renewed optimism among Dalal Street investors in the latter half.

The year began on a rocky note for Paytm, as the Reserve Bank of India (RBI) imposed a ban on Paytm Payments Bank Limited (PPBL) on January 31. The restriction prevented PPBL from accepting deposits, credit transactions, or top-ups in customer accounts, wallets, and FASTags, which dented investor sentiment and sent the stock into a downward spiral. Before this ban, the company reportedly faced penalties due to several concerns, including noncompliance with know-your-customer norms.

Adding to its challenges, foreign institutional investors (FIIs) consistently reduced their stake in the company, further pressuring the stock. Between January and May 2024, the stock lost 43% of its value, touching a record low of ₹310 apiece.

Paytm’s stages a turnaround

After a period of significant decline, the shares began a remarkable recovery in June, sustaining their upward momentum over the next six months. During this period, the stock surged from ₹360 to ₹990 apiece, delivering an impressive 175% return. At current levels, it is trading 220% higher than its all-time low, positioning it as one of the best turnaround performers among Nifty 500 stocks in 2024, as per the Trendlyne data. 

In early December, the stock crossed the ₹1,000 mark, reaching ₹1,062—a level last seen in January 2022. 

What’s behind the rebound in Paytm’s shares?

This resurgence can be attributed to the company’s improving prospects across its various business segments, which rejuvenated investor sentiment and bolstered confidence in its growth trajectory.

Several brokerages also responded positively to these developments, revising their target prices upward, which further fueled the stock rally. The company’s strategic focus on its core payments business and expansion into financial services such as loans, mutual funds, and insurance products have enhanced investor confidence. Projections suggest Paytm may achieve profitability sooner than anticipated.

In line with this strategy, Paytm exited its ticketing business by selling it to food delivery giant Zomato. Additionally, the company is close to finalising a $250 million (approximately ₹2,000 crore) deal to sell its stake in Japan’s digital payments firm PayPay Corporation to SoftBank Group.

In FY2024, the company achieved its first full year of EBITDA profitability since its IPO, with EBITDA before ESOPs reaching ₹559 crore. This milestone reflects a 25% year-over-year revenue increase and an 8% rise in the EBITDA margin.

Additional positive developments supporting the stock’s rebound include the Ministry of Finance’s approval for foreign direct investment (FDI) in its subsidiary PPSL and the National Payments Corporation of India (NPCI) granting permission to resume onboarding new UPI customers. These regulatory advancements removed key overhangs that had previously weighed on the stock.

However, some analysts remain cautious, highlighting that Paytm has not yet cleared all regulatory hurdles. The Reserve Bank of India (RBI) has yet to grant the company a payment aggregation license, which would enable it to provide third-party services for accepting and disbursing online payments—a critical area for future growth.

Global brokerage firms lift price targets.

Global brokerage firms UBS, Bernstein, and Citi have recently lifted their price targets for the stock. UBS and Bernstein revised their targets to ₹1,000, while Citi raised its target to ₹900 apiece.

Bernstein expects Paytm to expand its lending operations and improve payment margins, potentially doubling its base-case earnings per share (EPS) estimates. The brokerage highlighted several growth drivers that could propel Paytm’s profitability, including a recovery in payment margins, regulatory changes, and the company’s lending strategy.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.