Paytm‘s share price was upbeat on Tuesday morning as Emkay Global upgraded its rating for the payments giant to “add” from “reduce” increasing the target price to ₹750 from ₹375.

What Happened: Emkay Global's analysis of Paytm highlights a more optimistic outlook, driven by easing regulatory challenges and improved business visibility. The company has successfully stabilised its merchant base, which stands at around 4.1 crore, while transitioning its user base to partner banks.

This strategic move should facilitate the long-awaited National Payments Corporation of India approval to onboard new users, the analysts suggested. Additionally, the recent Foreign Investment Promotion Board (FIPB) approval strengthens the possibility of securing the payment aggregator (PA) license from the Reserve Bank of India (RBI), thereby safeguarding its online merchant business.

While Paytm’s postpaid loan distribution and personal loans are currently slow, the company’s merchant lending business is gaining traction and is expected to become a key growth driver in the near term, the brokerage added. Although the personal loan business could gather pace once regulatory concerns ease, the company is focusing on driving growth through its lending and payment solutions in the meantime, according to the research firm.

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On the cost optimiaation front, Paytm is undertaking substantial efforts to streamline operations, with significant staff cost reductions projected for FY25. These savings, estimated to be between ₹400 crore and ₹500 crore, are expected to result from voluntary and involuntary staff attrition and reduced marketing expenditure as the company transitions a larger part of its payment business to UPI.

This optimisation, combined with lower loan distribution costs (such as reduced collection expenses), should mitigate the drag on EBITDA, the brokerage said. Emkay expects Paytm’s operating expenses (excluding depreciation and employee stock options) to decline by 15% year on year in FY25.

With these cost-cutting initiatives, as well as revenue growth from Paytm's payment and lending businesses and interest income from its entertainment business sale proceeds, the brokerage expects the fintech firm to achieve positive operating EBITDA (excluding employee stock options and UPI incentives) by Q4FY25. Paytm is also expected to turn net profit-positive by FY27, earlier than previously estimated, Emkay said.

Price Action: Paytm’s share price was up 2.03% to trade at ₹664.80 in early trade on Tuesday.

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Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.