More Pain for Paytm As Macquarie Slashes Price Target By 36%

Paytm boss Vijay Shekhar Sharma may do well by preparing for tougher days ahead. Paytm parent company One97 Communication encountered another negative news on March 16, with a report from global financial services group Macquarie cutting the price target for the share by a steep 36 per cent. “We cut our target price by 36 per cent to Rs 450 on lower target multiples,” says the report.

There seems to be no respite for Paytm as it faces heat from all quarters: analysts are consistently reducing the price targets for the company, financial regulators seem to be closing their doors, while investors are dumping the shares and fuming at promoters due to erosion in their wealth. Sharma recently admitted on a TV show, “No promoters would like to see their investors in such a situation, and we are working hard to make things better.”

Sliding Targets

In its latest report, Headwinds Galore; Tough Times Ahead, Macquarie says, “Recent development significantly reduce the probability of getting a banking license to lend and other regulatory headwinds include the digital payments paper potentially capping wallet charges and tougher buy now pay later (BNPL) and KYC regulation.”

This is the fourth report Macquarie has released on One97 Communications since its listing. Macquarie in its research report, Too Many Fingers In Too Many Pies, released on Paytm’s listing day, wrote, “Paytm’s business model lacks focus and direction.” The report termed the company “a cash guzzler” and has raised doubts on its scale and profitability. Macquarie gave a price target of Rs 1,200 in that report. 

Macquarie came up with another report in January 2022, titled Sign Of Headwinds Abating, in which it reduced its target price further to Rs 900.  This price was around 25 per cent below the earlier target price of Rs 1,200. 

Further, in its February report, Macquarie reduced its price target from Rs 900 to Rs 700.

The stock is following the same pattern of price. It is to be seen how the share reacts after the latest report.

Regulatory Roadblocks

Recently, the Reserve Bank of India (RBI) directed Paytm Payments Bank, an associate of One 97 Communications, to temporarily halt onboarding of new customers. Post this directive, in the last two trading sessions, the stock is down by over 25 per cent. The stock touched an all-time low of Rs 584.66 on March 15, 2022. 

Taking cues from the HDFC Bank embargo, analysts are of the opinion that RBI is not going to remove the curb anytime soon. “As per a media report, the restrictions may have been imposed due to KYC issues around dormant accounts or other saving accounts. RBI takes these matters seriously and while the timeline for resolution isn't clear, we note that restrictions on HDFC Bank were completely lifted only after 15 months (December 2020-March 2022),” says Jeffries in its report.

Some time back, Insurance regulator Insurance Regulatory and Development Authority of India (Irdai) also declined Paytm’s request for an insurance distributor licence.

Analysts at ICICI Securities also believe that the RBI directive is expected to have a further adverse impact. “The RBI embargo will have an adverse impact on signing up users for new PPBL wallets or savings or current accounts, until further notice. Also, observing certain material supervisory concerns at PPBL, RBI’s directive will also remain an overhang till concerns are appropriately addressed,” writes ICICI Securities in its report.

Only time will tell when Sharma and Paytm investors will get to dance like he did after the Securities and Exchange Board of India’s nod to launch the IPO.