Macquarie has dramatically cut its 12-month price target for One97 Communications, the parent company of digital payments company Paytm, citing risks of customers leaving the platform after increased regulatory scrutiny. Macquarie, which famously predicted a fall in Paytm before the listing, cut its target to 275 rupees (down 57.7% from its previous target of 650 rupees), the most bullish of any major brokerage.
Paytm, which fell more than 6 percent on Tuesday morning to 395 rupees ($4.76), is reeling from the crackdown by India’s central bank. The Reserve Bank of India (RBI) late last month ordered Paytm to shut down all its operations at Paytm Payments Bank, a Paytm partner that processes all its transactions.
The analyst team, led by Suresh Ganapathy, wrote in a note on Tuesday that it believes Paytm will see a sharp decline in revenue and the regulatory crackdown poses a “serious risk of customer churn”.
A price target of 275 rupees would value Paytm at around $2.1 billion, a steep drop from its peak market cap of nearly $20 billion at the end of 2021. Paytm had a cash balance of $1.072 billion at the end of December.
“We have sharply reduced revenues as we reduce both distribution business payouts and revenues (60–65% over FY25/26E). Moving payment bank customers to another bank account or moving related merchant accounts to other bank accounts will require KYC (know your customer) to be done again based on our channel checks with partners indicating that the migration within the deadline of RBI on February 29 will be an arduous task.”
Macquarie’s 12-month views bull and bear target price for Paytm. Image Credits: Macquarie
Paytm – which makes most of its money through lending – is also likely to face challenges in retaining its lending partners, Macquarie added. Paytm is not licensed to operate as a non-banking financial company (NBFC) and acts as a distributor to connect lending partners with borrowers.
“Our channel checks with some lending partners reveal that they are re-examining their relationship with Paytm, which could ultimately lead to a reduction in business lending revenue should the partners reduce or terminate their relationship with Paytm. AB Capital, one of Paytm’s largest lending partners, has already reduced its exposure to BNPL in Paytm from a high of Rs 20 billion to Rs 6 billion currently and is expected to further reduce in our view.”
India’s central bank last week said it takes supervisory action and imposes business restrictions only after “persistent non-compliance” with rules, its first comment since last week’s crackdown on Paytm raised existential questions about the flagship company’s future financial services.
Shaktikanta Das, the governor of the Reserve Bank of India, said the central bank always works with regulated entities bilaterally and pushes them to take corrective action. If the central bank takes action, “it is always commensurate with the gravity of the situation,” Das told a media briefing. “All our actions, as a responsible regulator, are in the interest of systemic stability and protecting the interests of depositors or clients,” he added.
