Paytm slips 5% to hit new low; falls 26% in past three weeks

Shares of One97 Communications, the parent company of digital payments major Paytm, hit a new low of Rs 990, down 5 per cent on the BSE in Wednesday’s intra-day trade on the back of heavy volumes. The stock is less than 10 per cent away from touching brokerage firm Macquarie's target price of Rs 900 apiece.

In the past three weeks, the stock price of Paytm has slipped 26 per cent, whereas it has declined 54 per cent against the issue price of Rs 2,150. The company had made its market debut on November 18, 2021.

At 12:56 pm, Paytm was down 4.4 per cent at Rs 997, as compared to a 1.2 per cent decline in the S&P BSE Sensex. A combined 5.2 million equity shares had changed hands on the counter on the NSE and BSE.

On listing, foreign portfolio investors (FPIs) held 10.37 per cent stake, while individual shareholders held 12.05 per cent holding in Paytm, the shareholding pattern data shows. The company is yet to file its December quarter shareholding pattern. 

On January 10, 2022 global brokerage Macquarie came out with a report on One97 Communication maintaining its ‘underperform’ rating on the stock and reducing its target price (TP) to Rs 900. Macquarie’s previous target price for Paytm was Rs 1,200 in November.

“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 (compound annual growth rate) 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 had said. 

It added that it was cutting its earnings projection by 16-27 per cent for FY22-25E, because of lower revenues and higher employee and software expenses. “We cut our TP sharply by around 25 per cent owing to a lower target multiple of 11.5x (price-to-sales ratio) (from 13.5x earlier) and lower sales numbers,” the brokerage said.

The Reserve Bank of India’s (RBI’s) proposed digital payments regulations could cap wallet charges. The payments business still forms 70 per cent of overall gross revenues for Paytm and, hence, any regulations capping these charges could impact revenues significantly. Add to that the recent rejection of Paytm’s foray into insurance by the Insurance Regulatory and Development Authority. The brokerage believes this could impact the company’s prospects of getting a banking license. 

Paytm has a history of net losses and it may not be able to achieve profitability. In the event that payment processing charges payable to financial institutions and card networks increase significantly, and Paytm is not able to pass on these higher processing charges to its merchants or consumers, it may not be profitable, brokerage HDFC Securities had said in its IPO note.

It had added that the ongoing COVID-19 pandemic and measures intended to prevent its spread have had, and may continue to have, a material and adverse effect on the business and results of operations.

Paytm offers some of its services in partnership with group company, Paytm Payments Bank. Any failure by Paytm Payments Bank to support these services could adversely impact these services and could impact the overall business, financial condition and results of operations are among key risks and concerns, it said.