NEW DELHI: Global brokerage firm Macquarie has slashed target price (TP) for One97 Communications (Paytm) shares by more than 50% to Rs 275 apiece as it sees large customer exodus, reduction in revenue and losses accumulating.
It expects One97 Communications to report a Rs 3,424 crore loss in FY25 from an expected loss of Rs 1,742 crore in FY24. Following this report, Paytm shares fell 10% on Tuesday to close at Rs 380 apiece. The stock has erased half of its value in less than two weeks.
“We downgrade Paytm to Underperform and sharply cut TP to Rs 275 from Rs 650, driven by a sharp reduction in revenues across various segments,” said Macquarie note. In a big setback for SoftBank-backed Paytm, RBI barred its Payments Bank from taking new or top-up deposits in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024, due to non-compliance.
This, as per analysts at Macquarie, poses a serious risk of exodus of customers for Paytm which significantly jeopardises its monetisation as well as its business model. Currently, Paytm has 33 crore customers, with 11 crore monthly transacting users. It also has a network of over 1.06 crore merchants.
“We factor 60-65% fall in distribution revenues leading to 170%/40% increase in loss estimates over FY25E/26E…We assume a 50% cash burn (cash balance of Rs 130/share) and 20x P/E multiple to normalised earnings from distribution business. Our TP is based on assumption that Paytm remains a going concern,” said Macquarie.
It said moving payment bank customers to other bank accounts within RBI’s February 29 deadline will be an arduous task. The note added that their channel checks with some lending partners reveal they are re-looking at their relationship with Paytm, which could lead to a fall in lending business revenues in case partners scale down or terminate their relationship with Paytm.
Company’s losses likely to expand in FY24
Macquire expects One97 Communications to report a Rs 3,424 crore loss in FY25 from an expected loss of Rs 1,742 crore in FY24. Following this report, Paytm shares fell 10% on Tuesday to close at Rs 380 apiece. The stock has erased half of its value in less than two weeks