Macquarie values Paytm at Rs 900; stock falls 45% against issue price

Global brokerage Macquarie has maintained its 'underperform' rating on the stock and reduced its target price (TP) to Rs 900.

Shares of One97 Communications, the parent company of digital payments major Paytm, hit a new low of Rs 1,181.10, down 4 per cent on the BSE in Monday’s intra-day trade after global brokerage Macquarie maintained its ‘underperform’ rating on the stock and reduced its target price (TP) to Rs 900.

The stock was trading at its lowest level since its market debut on November 18, 2021. It was quoting lower for the fifth straight trading day, having fallen 12 per cent in the last one week, as compared to a 1.8 per cent rise in the S&P BSE Sensex.

In the past one month, it has slipped 25 per cent, as against a 2.5 per cent gain in the benchmark index. The mandatory one-month lock-in period for anchor investors expired on December 15, 2021.

With today's slide, the market price of Paytm has fallen 45 per cent from its issue price of Rs 2,150 per share. The stock had hit a record high of Rs 1,961.05 on November 18, but has failed to touch its issue price post listing.

"Post the various business updates and results, we believe our revenue projections, particularly on the distribution side, is at risk and hence we pare down our revenue CAGR from 26 per cent to 23 per cent for FY21- 26E. We are roughly cutting revenue estimates for FY21-26E on an average by 10 per cent every year due to lower distribution and commerce/cloud revenues offset partially by higher payment revenues," Macquarie said in a stock update.

"We cut our earnings (increase our loss projections) by 16-27 per cent for FY22-25E owing to lower revenues and higher employee and software expenses. We cut our TP sharply by around 25 per cent owing to lower target multiple of 11.5x (Price to Sales ratio) (from 13.5x earlier) and lower sales numbers," the brokerage firm said.

The Reserve Bank of India’s proposed digital payments regulations could cap wallet charges. Payments business still forms 70 per cent 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 Insurance Regulatory and Development Authority (IRDA). We believe this could impact the company's prospects of getting a banking license, it said.