Shares of One97 Communications Limited, the parent company of digital payments firm Paytm, dipped sharply in early trade to hit a record low on Tuesday. The shares today fell up to 8.7 per cent to the day’s low at Rs 385.75 on BSE after global broking firm Macquarie downgraded the troubled fintech to underperform from the neutral call with a reduced target price of Rs 275 saying that the Vijay Shekhar Sharma-led company is facing a serious risk of customer exodus which significantly jeopardises its monetisation and business model.
The embattled digital payments firm’s shares have been under pressure over the past few weeks, following the crisis it encountered after the Reserve Bank of India took action against its associate, Paytm Payments Bank.
Fresh downgrade
Macquarie, the brokerage firm, downgraded Paytm’s stock to “underperform” status after the regulatory action on its banking arm. Additionally, Macquarie slashed the price target for Paytm shares to a street-low of Rs 275 from the earlier Rs 650.
This downgrade follows a significant decline in Paytm shares, which have dropped by approximately 45 per cent since the RBI’s order on January 31, 2024.
Suresh Ganapathy, an analyst with Macquarie, highlighted the serious risk of losing customers for Paytm, which could severely impact its business model. He noted that transferring customers from Paytm Payments Bank to other banks by the RBI’s February 29 deadline would be challenging, as it would require customers to undergo KYC procedures again.
With the winding down of its payments business, Ganapathy predicts a 50 per cent cash burn rate for Paytm and assigns a 20x P/E valuation to its loan distribution business.
The brokerage also revised its FY25 loss estimates, anticipating a 170 per cent increase due to a projected 60 per cent-65 per cent decrease in loan distribution revenue.
Currently, fourteen analysts tracking Paytm rate it as “hold” on average, with the mean price target being the lowest in at least a year, according to data from LSEG.
Following a ban imposed on Paytm Payments Bank, which also houses the Paytm wallet, Reserve Bank of India (RBI) Governor Shaktikanta Das has said that there is hardly any room to review the actions.
“When constructive engagement doesn’t work or when the regulated entity does not take effective action, we go for imposing business restrictions. Actions are proportionate to the gravity of the situation,” Das has said.
Paytm shares have lost about 50% of its value ever since the RBI ban on January 31st. Market experts have warned retail investors to avoid being on the buy side till the time Paytm is out of the woods as far as regulatory issues are concerned.
Global broking firm Bernstein has, however, advocated a buy the dip strategy while giving a target price of Rs 600.
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