Macquarie downgrades Paytm, slashes target price by 58%

Paytm, once the poster child of India’s booming fintech industry, continues to find itself in the midst of a tumultuous storm that started with RBI’s blanket ban on its payments bank entity. The stock price has since been taking sever hitting, having erased over half of company’s market cap. Now, brokerage firm Macquarie has announced a downgrade for One97 Communications, the parent company of the Indian fintech giant, to an ‘underperform’ rating. This decision comes amidst heightened regulatory scrutiny and challenges faced by Paytm in maintaining its market position.

With the new reduction, Macquarie has significantly adjusted its target price for Paytm, slashing it from ₹650 to ₹275. The firm’s stark assessment paints a picture of a company “fighting for survival”, and this substantial reduction represents a total decrease of 58%. Analyst Suresh Ganapathy, representing Macquarie, has highlighted the risk of a customer exodus facing Paytm due to regulatory restrictions and compliance issues. This poses a significant threat to Paytm’s user base, and comes amidst intense regulatory scrutiny from the Reserve Bank of India (RBI). “Post recent diktats, Paytm faces a serious risk of customer exodus, which significantly jeopardises its monetisation and business model,” Macquarie said in a report on Tuesday.

One of the key challenges identified by Macquarie is the difficulty Paytm faces in migrating payment bank customers to alternative accounts within the regulatory deadline. Additionally, the brokerage firm noted that lending partners are re-evaluating their relationships with Paytm, potentially leading to a decline in lending business revenues. And if this is not enough, in response to the regulatory challenges and anticipated decline in revenues, Macquarie has revised its loss estimates for Paytm. The brokerage firm foresees a substantial increase in losses, projecting a 170% and 40% rise in losses for FY25 and FY26, respectively.

Macquarie’s downgrade follows recent regulatory changes imposed by the Reserve Bank of India (RBI) on Paytm Payments Bank Ltd., an associate company of One97 Communications. These changes, aimed at addressing persistent non-compliance and supervisory concerns, have imposed significant constraints on Paytm’s operations and growth prospects. More recently, the RBI’s decision to impose strict restrictions on Paytm Payments Bank (PPB) sent shockwaves through the fintech landscape.

For those who missed it, citing “persistent non-compliance” and supervisory concerns, the central bank froze new deposits and placed limitations on existing account activity. This action directly cripples Paytm’s core operations, as PPB serves as the backbone for processing most of its transactions, and throws its future into question (especially as Paytm is set to cut ties with PPB as well). As of now, the Indian fintech major has 33 crore customers, with 11 crore monthly transacting users, alongside a network of over 1 crore merchants. “Our channel checks with some lending partners reveal that they are re-looking at their relationship with PayTM which eventually could lead to a decline in lending business revenues in case partners scale down or terminate their relationship with PayTM. AB Capital, one of PayTM’s largest lending partners, has already pared down their BNPL exposure to PayTM from a peak level of Rs20bn to Rs6bn currently and is expected to go down further in our view,” Macquarie added.


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