Paytm shares slump to fresh low after Macquarie cuts target price by 25%

Paytm parent One97 Communications' shares hit a fresh low on Monday, after Macquarie lowered its target price for the stock to Rs 900 from Rs 1,200. The brokerage retained its 'underperform' rating on Paytm, raising its loss projections for the company by 16-27 percent for FY22-25 on lower revenue and higher employee as well as software costs.

The Paytm stock fell as much as 6.6 percent to an all-time low of Rs 1,151 on the BSE -- a discount of 46.5 percent to its issue price of Rs 2,150. It settled at Rs 1,157.9 apiece for the day, down six percent from its previous close.

Paytm is one of the worst Dalal Street debutants of 2021. Its IPO was the biggest of all time in India.

Macquarie also revised its revenue CAGR estimate for Paytm to 23 percent for FY21-26E from 26 percent, citing lower distribution and commerce/Cloud revenue. It lowered the price-to-sales multiple for Paytm to 11.5 times from 13.5 times.

After various business updates and earnings, Macquarie said, its revenue projections particularly on the distribution side are at risk.

"We are roughly cutting revenue estimates for FY21-26E on an average by 10 percent every year due to lower distribution and commerce/Cloud revenues offset partially by higher payment revenues," it said, adding that several regulatory and business-specific challenges exist for the company.

The brokerage said the Paytm stock trades at 17 times its FY23E sales, which is expensive.

Here are some highlights of what Macquarie said:

RBI’s proposed digital payments regulations could cap wallet charges

Payments business forms 70 percent of overall gross revenues for Paytm, any regulations capping charges could impact revenues significantly

Paytm’s foray into insurance was recently rejected by insurance regulator IRDA; this could impact its prospects of getting a banking license

Senior management attrition is another cause of concern that could impact business

Paytm's average ticket size for loans disbursed has been coming down consistently in the past 12 months and stands at sub-Rs 5,000 levels. "At this size, we don’t think it is doing many merchant loans and most of the loans are small value BNPL (buy-now-pay-later) loans. Hence the eventual distribution fees realised by them are likely to be much lower than our earlier estimates," Macquarie said.

In November, One97 Communications shares listed on bourses at a discount of around nine percent to the issue price. Its IPO was subscribed an overall 1.9 times the shares on offer.

One97 Communications reported a net loss of Rs 473 crore for the second quarter of FY22, up 8.5 percent on a year-on-year basis, though its revenue from operations increased 63.6 percent to Rs 1,086.4 crore.