Paytm (One 97 Communications) share price may extend its losses further and erase more than half of IPO investor’s wealth.
Paytm (One 97 Communications) share price may extend its losses further and erase more than half of IPO investor’s wealth, said foreign brokerage firm Macquarie in a note. The brokerage firm has cut its target price for the fintech giant to merely Rs 900 per share, 25% lower from its previous target of Rs 1,200 and 58% below the public issue price of Rs 2,150 per share. Shares of Paytm have had an abysmal journey on Dalal Street so far since listing in November last year. The stock is down 45% from the IPO price. On Monday the scrip was down 4.76% to hit an intraday low of Rs 1,173 per share.
Cut in target price
Analysts at Macquarie had earlier pinned a target price of Rs 1,200 per share on Paytm, but are now expecting the stock to slip an additional 25%. The brokerage firm has also cut its earnings projections for Paytm. “We are roughly cutting revenue estimates for FY21-26E on an average by 10% every year due to lower distribution and commerce/cloud revenues offset partially by higher payment revenues,” Macquarie said. It added that loss projections have been increased by 16-27% for FY22-25E owing to lower revenues and higher employee and software expenses.
The brokerage firm has pared down its projections for commerce and particularly distribution business revenues. “Competition will limit commerce revenue growth and distribution business will continue to be led by small ticket BNPL loans thereby limiting revenue potential in our view,” it added.
Risks ahead for Paytm
Paytm is expected to face multiple challenges ahead, the primary one being RBI’s proposed digital payments regulations. “Payments business still forms 70% of overall gross revenues for PayTM and hence any regulations capping charges could impact revenues significantly. Add to that, PayTM’s foray into insurance was recently rejected by the insurance regulator IRDA. We believe this could impact PayTM’s prospects of getting a banking license,” the note said.
Adding to concerns is the reduction in senior management figures at Paytm. Macquarie highlighted that senior executives have been resigning from Paytm which is a cause of concern and could impact business in their view if the current rate of attrition continues. Further, on the lending front, Paytm’s average ticket size of loans disbursed is now low at Rs 5000, which analysts believe will lead to lower fees than earlier estimated.
Target price and valuations
While recent bullish outlooks by Morgan Stanley and JP Morgan on Paytm stock have attempted to justify valuations, analysts at Macquarie have termed them expensive. “Stock trades at 17x FY23E sales which we believe is expensive,” the note said. The reduced target price of Rs 900 per share implies a 25% downside potential for Paytm’s current market price and a 58% fall from the IPO price.
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