Macquarie has significantly reduced its 12-month price target on One97 Communications, the parent company of Paytm, expressing concerns about the potential departure of customers from the platform amid increased regulatory scrutiny. The brokerage firm’s new target of 275 rupees reflects a 57.7% decrease from its previous target of 650 rupees, making it the most substantial reduction by a major brokerage firm.
Key Takeaway
Macquarie has slashed its 12-month price target on Paytm due to concerns about potential customer attrition and revenue reduction stemming from regulatory actions, signaling significant challenges for the digital payments firm.
Regulatory Scrutiny Impact
Paytm experienced a drop of over 6% on Tuesday morning, reaching 395 rupees, as it grapples with the repercussions of heightened regulatory oversight by the Reserve Bank of India. The central bank’s recent directive to effectively halt operations at Paytm Payments Bank, which processes all of Paytm’s transactions, has added to the company’s challenges.
Revenue Reduction and Customer Exodus
Macquarie’s analyst team, led by Suresh Ganpathy, emphasized the anticipation of a substantial decline in revenues for Paytm, attributing it to the regulatory crackdown and warning of a “serious risk of exodus of customers.” The firm’s revised price target would value Paytm at approximately $2.1 billion, marking a significant decrease from its peak market capitalization of nearly $20 billion in late 2021.
Lending Business Challenges
Furthermore, Macquarie highlighted the likelihood of Paytm encountering difficulties in retaining its lending partners, particularly due to its lack of a non-banking financial company (NBFC) license. The firm acts as a distributor in connecting lending partners with borrowers, and Macquarie’s channel checks indicated that lending partners are reconsidering their relationships with Paytm, potentially leading to a decline in lending business revenues.
Regulatory Response
Following the regulatory actions, the Reserve Bank of India’s governor, Shaktikanta Das, stated that the central bank engages with regulated entities to prompt corrective action and emphasized that any regulatory measures are proportionate to the gravity of the situation. The central bank’s recent actions have raised existential questions about the future of Paytm, a prominent player in India’s financial services sector.
