Another blow for Paytm! Macquarie cuts target price in fresh downgrade; shares crash 10%

Paytm share price today: Paytm shares experienced a significant decline of up to 9.88% today, reaching a low of Rs 380.10 on the Bombay Stock Exchange (BSE). This drop came after global broking firm Macquarie downgraded the Vijay Shekhar Sharma-led troubled fintech company from a neutral call to underperform. Macquarie also reduced Paytm’s target price to Rs 275, expressing concerns about the company’s risk of customer exodus, which poses a serious threat to its monetisation and business model.
According to an ET report, Macquarie’s Suresh Ganapathy explained the reasoning behind the downgrade, stating that they have changed their methodology from price/sales to fair value on normalised distribution business profits.As a result, they have revised our target price to Rs 275 from Rs 650.
Ganapathy said that under their previous methodology, the valuation would have been Rs 225. Ganapathy further highlighted the increased loss estimates by 170%/40% over FY25/26, considering a significant decline in revenues due to lower payments and distribution revenues. The brokerage also factored in a 50% cash burn rate and a 20x PE multiple to normalised earnings from the distribution business.
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Macquarie’s report mentioned the challenges Paytm might face in migrating its payment bank customers and related merchant accounts to other banks. This process would require Know Your Customer (KYC) verification to be conducted again, making the migration within the Reserve Bank of India’s (RBI) February 29th deadline a difficult task.
The report also highlighted that some lending partners are re-evaluating their relationship with Paytm, which could potentially lead to a decline in lending business revenues if partners scale down or terminate their association with the fintech company.
Macquarie provided two scenarios for Paytm’s stock performance. In the bull case scenario, the stock could rally up to Rs 540, considering a 25% decline in distribution revenues. However, in the bear case scenario, the stock could plummet to as low as Rs 180 if distribution revenues drop by 75%.
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Paytm has faced regulatory issues recently, including a ban imposed on Paytm Payments Bank, which houses the Paytm wallet. Reserve Bank of India (RBI) Governor Shaktikanta Das has stated that there is little room for reviewing the actions taken against Paytm. Das explained, “When constructive engagement doesn’t work or when the regulated entity does not take effective action, we go for imposing business restrictions. Our actions are proportionate to the gravity of the situation.”
Since the RBI ban on January 31st, Paytm shares have lost approximately 50% of their value. Market experts have cautioned retail investors to refrain from purchasing Paytm shares until the company resolves its regulatory issues.
In contrast, global broking firm Bernstein has suggested a buy the dip strategy and set a target price of Rs 600.

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