International brokerage firm Macquarie has maintained its lowest rating for Paytm’s parent firm One97 Communications Limited. Macquarie has retained such a rating even two months after Paytm’s debut on the stock market.
The firm has retained its ‘Underperform’ rating for Paytm stock and has lowered its target price to Rs. 900 for each share. This signifies a major 25% drop from its current levels. The last target price stood at Rs. 1,200 a share that was assigned right before Paytm’s listing on 18 November 2021. Notably, this was much less than its IPO price of Rs. 2,150 a share.
Impact of Mac Rating on Paytm Stock
As Macquarie reduced its target price for Paytm by 25%, shares of the payment platform saw a major drop on 10 January. Paytm stock crashed to Rs. 1,152 a share which is an all-time low for the stock. This implies a massive 45.14% slump from its issue price. The stock closed at Rs. 1,159.
Apart from this significant drop, Paytm shares have been on a downhill trip for the past three weeks. Since its debut on the stock market on 18 November 2021, Paytm stock has been on a roller-coaster journey. It touched an all-time high of Rs. 1,961.05 and a low of Rs. 1,271.25 a share.
Paytm’s market sentiment has been generally weak. The major reasons behind such lower targets are reduced shares in commercial and financial services, reduced partnerships in financial services, lower cross-sell cost and others.
Top Challenges for Paytm’s Profitability
Macquarie has listed some of the factors that could potentially act as a threat to Paytm’s profitability in the near future. These factors include:
Regulatory Challenges
The RBI has stated that upcoming digital payments regulations might cap the wallet charges. Nearly 70% of Paytm’s gross revenue is made from its payments business. So, any rules that could limit the charges will impact its revenue. Moreover, its plans to enter into the insurance sector were rejected recently.
The average loan ticket size that Paytm has been disbursing for the past 12 months is on a constant decline. It has now come down to below Rs. 5,000 levels. Naturally, Paytm isn’t disbursing many merchant loans now. Most of the loans that it is disbursing are ‘buy-now-pay-later’ kind. This has reduced its distribution fees significantly.
Several senior executives have been leaving the firm lately. This can be a major cause of concern, impacting the business severely.
Bottom Line
The views of Macquarie are in contrast with Goldman Sachs and Morgan Stanley. They believe India’s supportive tech regulatory scenario, infrastructure and Paytm’s massive addressable market can be major reasons for its growth.
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Source: Bloomberg Quint
Frequently Asked Questions
The shares of One97 Communications hit a low of Rs. 1,181.10 per share, which is a 4% drop on BSE. This price was recorded in Monday’s intra-day trading.
The revenue CAGR projection for Paytm from Mac has been reduced to 23% from 26% for FY 21-26E.
The net loss of Paytm for the first quarter of FY 2021 stood at Rs. 284.4 crores.
Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.
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