Goldman Sachs has upgraded its rating on Paytm shares to "buy" from "neutral" and revised its target price on the stock to Rs 1,460 from Rs 1,600.

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Paytm shares have fallen around 30 percent YTD and the brokerage firm now sees risk-reward as attractive with 119 percent upside in its bull case as against 14 percent downside in its bear case.

"Our analysis suggests the current share price is implying multiple headwinds including MDR caps, a decline in market share for Paytm, and significantly slower ramp-up of Paytm's financial services, which we view as unlikely," the brokerage firm said in a note to clients.

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The brokerage firm believes that strong topline growth will help allay investor concerns around declining payments take rate in recent years.

Paytm is trading at around a 10 percent discount to global fintech peers, but Paytm's revenue growth is higher as compared to global peers, the brokerage said. Goldman Sachs analysis suggests that the current share price is implying a multiple of 5.6 times for its payments business, lower than the peer group. This prompted the upgrade, according to the brokerage firm.

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Further, Goldman Sachs expects Paytm's increase in scale to result in an improving margin trend. Also, a strong balance sheet and a limited likelihood of the company needing to raise capital are other positives.

Other factors driving the upgrade were better-than-expected take rate, continued market share gains in payments vertical, continued strong traction in lending, the healthy performance of loan portfolio and significant improvement in risk-reward ratio, as per the global brokerage firm.

"...we believe Paytm remains well-positioned to capture the share of digital payments in India and view Paytm's business model as characterised by network effect," the brokerage firm said in the note.

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