Global brokerage firm Macquarie has revised its rating on Paytm from ‘neutral’ to ‘underperform,’ while significantly reducing its target price from Rs 650 to Rs 275. This adjustment is driven by substantial declines in revenues across various segments, compounded by recent regulatory changes.
According to Macquarie’s analysis, Paytm now faces a significant risk of customer exodus due to regulatory pressures, posing a threat to its monetization strategies and overall business model. The brokerage has raised its loss estimates by 170% and 40% for FY25 and FY26, respectively, factoring in a projected 60-65% decline in revenues, particularly in payments and distribution segments. Additionally, Macquarie has factored in a 50% cash burn rate and applied a 20x PE multiple to normalized earnings from its distribution business.
The downgrade follows regulatory actions taken against Paytm Payments Bank by the Reserve Bank of India, which barred the bank from offering services beyond February as of a January 31 order. Consequently, Paytm’s stock experienced a 5.73% decline to Rs 398.40 on the BSE during early morning trading.
Macquarie’s note also highlights a sharp reduction in revenue estimates, particularly in payments and distribution business segments, projecting a decrease of 60-65% over FY25 and FY26.
Moreover, Macquarie’s analysis suggests that transferring payment bank customers to other bank accounts or relocating associated merchant accounts to alternative banking services will require extensive Know Your Customer (KYC) procedures. This suggests that complying with the RBI’s deadline of February 29 for migration could pose significant challenges.
