Paytm bleeds as Macquarie's second report puts Rs 1,200 as target price

Profitability may 'remain elusive for a long time', says brokerage about digital payments company.

Paytm shares fell for the second trading day after the digital payments company listed on November 18, with its share prices sliding 18 per cent to Rs 1,284 till 12:26 pm IST.

Brokerage firm Macquarie published on Monday a second report on Paytm, maintaining its earlier target price of Rs 1,200 and an ‘underperform’ rating after its first one on listing day ruffled investors.

“Paytm’s valuation---is expensive, especially as profitability should remain elusive for a long time. We recommend UP with TP of Rs 1,200 valuing company at 0.5x PSg on Dec-23 annualised sales,” the report said.

Paytm valued its IPO at Rs 149,000 crore ($20 billion) and has a market capitalisation of around Rs 89,000 crore ($11.2 billion), but has lost about 44 per cent of its value.

The company, in an effort to arrest the slide of its share prices, notified the exchanges on Sunday that its gross merchandise value grew 131 per cent to Rs 83,200 crore ( $11.2 billion) in October on a year on year basis.

Commenting on the numbers, Macquarie said “While GMV has grown 112% YoY, it is dominated by UPI (66 per cent in FY21 as per our estimates), where PayTM earns zero-MDR. We see UPI share climbing up to 85% by FY26E. Hence, we do not see the strong reported GMV growth materially affecting our P&L estimates.”

“For the overall industry, UPI (united payments interface) GMV has growth at 117 per cent in Apr-Oct’21 period, with P2P growing at 105% and P2M at 190%. Hence, Paytm’s strong GMV growth mirrors the industry trend for UPI,” it added.

The company said that its monthly transacting users (MTU) have consistently grown in FY21 and in the first two quarters of FY22, and the trajectory has continued in October 2021 with 63 million MTUs, growth of 35 per cent YoY over the 47 million MTUs in October 2020.

Macquarie’s news report said: “On the downside, Paytm’s loan distribution metrics are much lower than our estimates. Paytm has disbursed loans worth Rs 25bn YTD and the current run-rate for Oct’21 is at Rs 6.3 billion.”