Paytm Fighting For Survival, Says Macquarie After Downgrade

Macquarie downgraded Paytm to underperform, cutting target price by 58% to Rs 275 apiece.

<div class="paragraphs"><p>Paytm pavilion at the Global Fintech Fest. (Source: Vijay Sartape/NDTV Profit)</p></div>
Paytm pavilion at the Global Fintech Fest. (Source: Vijay Sartape/NDTV Profit)

Brokerage house Macquarie Equity Research downgraded One 97 Communications Ltd., parent of Paytm, to 'underperform' and cut its target price by 58%, as it sees the payments firm as "fighting for survival".

"Post recent diktats, Paytm faces a serious risk of customer exodus, which significantly jeopardises its monetisation and business model," Macquarie said in a report on Tuesday.

The target price for the stock has been cut to Rs 275 per share from Rs 650 apiece earlier due to a sharp reduction in revenues across various segments, Macquarie said.

Currently, Paytm has 33 crore customers, with 11 crore monthly transacting users. It also has a network of over 1 crore merchants.

"We cut revenues sharply as we reduced both payments and distribution business revenues (60–65% over FY25/26E)," Macquarie said.

Moving payment bank customers to another bank account or moving related merchant accounts to another bank account will require know-your-customer checks to be done again, the research note said. This indicates that migration within the regulator's Feb. 29 deadline will be an arduous task.

On Jan. 31, the Reserve Bank of India introduced extreme business restrictions on Paytm Payments Bank, where it stopped fresh deposits into customer accounts after Feb. 29. The regulator allowed customers to use their existing balances through payment withdrawals or transfer transactions.

Post-restrictions, lenders working with parent app Paytm are also reviewing their relationships, Macquarie said. This could eventually lead to a decline in lending business revenues if partners scale down or terminate their relationship with Paytm, it added.

One of the lending partners, Aditya Birla Capital, has already cut its 'buy now, pay later' exposure through Paytm from a peak of Rs 2,000 crore to Rs 600 crore.

"We assume a 50% cash burn (a cash balance of Rs 130 per share) and a 20-times P/E multiple to normalised earnings from the distribution business. Our target price is based on the assumption that Paytm remains a going concern. Our bull case scenario assumes ongoing partnerships and limited scaledown from lending partners," the note said.

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