Macquarie has downgraded beleaguered Paytm parent One 97 Communications. Giving it an “underperform” rating, the foreign broking firm cut the target price to INR 275 from INR 650. Macquarie analyst Suresh Ganapathy said Paytm now faces a serious risk of customer exodus after the Reserve Bank of India has put curbs on its payments bank, a move that is likely to significantly jeopardize its monetization and business model.
Stock Opens Even Lower On Tuesday Morning On NSE
The target price is 33 percent lower than One 97 Communications’ previous closing price of INR 416. On February 13 morning, the stock opened another 6 percent lower at INR 396 on the NSE.
“We increase loss estimates by 170 percent/40 percent over FY25E/26E, factoring 60-65 percent decline in revenues due to lower payments and distribution revenue,” Ganapathy wrote.
Macquarie’s target price cut comes after the RBI Reserve Bank in January placed restrictions on Paytm Payments Bank Ltd (PPB), an associate company of One97 Communications, saying the actions were warranted by “persistent non-compliances and continued material supervisory concerns in the bank.”
The apex bank of India did not provide details of the concerns, though it directed PPB to stop accepting deposits, credit transactions or top ups in customer accounts, prepaid instruments, wallets, FASTags, and NCMC cards after February 29, other than any refunds, cashbacks and interest. It has also ordered the payments bank to settle all pipeline transactions and nodal accounts by March 15.
At present, Paytm has over 330 million customers and 110 million monthly transacting users. “Moving payment bank customers to another bank accounts or moving related merchant accounts to other bank accounts will require KYC (Know your customer) to be done again based on our channel checks with partners, indicating that migration within RBI’s Feb 29th deadline will be an arduous task,” Ganapathy said.
Lending Partners Reconsidering Business Relationship With Paytm
The restrictions on PPB do not directly impact the lending business. However, Macquarie’s channel checks are suggesting that some lending partners of Paytm are re-considering their relationship with the company due to reputational concerns, intensifying the company’s woes.
“AB Capital, one of Paytm’s largest lending partners, has already pared down their BNPL exposure to Paytm from a peak level of Rs 2,000 crore to Rs 600 crore currently and is expected to go down further in our view,” said Macquarie.
Paytm itself is cutting down on low-ticket (below INR 50,000) loans and focusing on higher ticket ones, following the RBI’s increase of risk weights on unsecured consumer lending.
“We assume a 50 percent cash burn and 20x price-to-earnings multiple to normalized earnings from the distribution business. Our target price is based on assumption that Paytm remains a going concern,” the company was quoted as saying.
Bengali