Brokerage firm JM Financial Institutional has initiated sell rating and cut its target price on Paytm owner One97 Communications Ltd.
JM Financial has set its target price to ₹1240 a share from ₹1783 a share.
Paytm has lost nearly 17.16% since listing, eroding over ₹24,000 crore of market value. At the IPO price, the company was worth ₹1.39 trillion. Its issue price was at ₹2,150 a share.
“Paytm faces stiff challenges in its customer acquisition engine which would slow down its revenue growth in the core payments business while scale-up of its related ecosystem businesses (Commerce, Cloud and Financial Services) leaves much to be desired. In our view, Paytm will need to keep funding its MTU growth and thus the road to profitability largely relies on the growth trajectory of other businesses”, said the JM Financial report in a note to its investors.
JM Financial report added that the ‘buy now pay later’, loan origination and merchant credit offer a large opportunity canvas, building a successful lending business is a long drawn process and requires razor-sharp focus and top-notch execution against formidable opponents. Also, Paytm will need to adapt itself to this evolving regulatory environment for digital lenders; this, in our view, is likely to get more stringent than conducive, it added.
The firm on Saturday said its net loss widened to ₹474 crore in the September quarter against ₹437 crore a year ago. Revenue grew 64% to ₹1090 crore.
“We forecast GMV CAGR of 41.1%, revenue CAGR of 36.1% and GMV/MTU CAGR of 18.2% over FY21-26E for Paytm. However, even with our robust growth expectations (which in turn are a function of its ability to fund MTU growth through cashback/discounts), and an EBITDA breakeven by FY27E, we find valuations rich and the path to profitability fraught with high execution risks in context”, JM Financial report added.
Earlier on 19 November, brokerage Macquarie initiated an underperform rating on the stock and had reduced its target price by 40% to ₹1200 a share citing Paytm’s lack of focus and direction, while calling the company a ‘cash guzzler’.
On 20 November, Paytm reported an overall gross merchandise value (GMV) of ₹832 billion (roughly $11.2 billion) in the month of October 2021, as a part of its latest disclosures with the stock exchanges on Sunday evening.
Paytm said its monthly transacting users also grew by 35% year-on-year to 63 million in the month of October 2021. It had earlier reported 47 million monthly users in October 2020. The average monthly active users for the quarter ending September 30, this year, stood at 57 million,
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