Macquarie has dramatically cut its 12-month price target on One97 Communications, the parent company of digital payments company Paytm, citing risks of customers leaving the platform after the heightened regulatory scrutiny. Macquarie, which famously predicted Paytm’s decline before the listing, lowered its target to 275 rupees (down 57.7% from its previous target of 650 rupees), the most brutal of any major broker company.
Paytm, which fell more than 6% on Tuesday morning to 395 rupees ($4.76), is reeling from the clampdown by India’s central bank. The Reserve Bank of India last month ordered Paytm to all but shut down the operations of Paytm Payments Bank, a Paytm partner that processes all of its transactions.
The analyst team, led by Suresh Ganpathy, wrote in a note on Tuesday that it believes Paytm will see a sharp decline in revenues and the regulatory crackdown presents a “serious risk of exodus to customers.”
A price target of 275 rupees would value Paytm at around $2.1 billion, a steep drop from its peak market capitalization of around $20 billion in late 2021. Paytm has $1.072 billion in balance sheet cash at the end of December.
“We have cut revenues significantly as we have reduced payments and distribution business revenues (60-65% in FY25/26E). Shifting of the bank’s payment customers to other bank account or transferring related merchant accounts to other bank accounts requires KYC (know your customer) to be done again based on our channel check with partners, indicating that the migration within RBI on Feb 29th deadline will be a tough task .”
Paytm – which makes most of its money through lending – is likely to face challenges in retaining lending partners, Macquarie added. Paytm does not have a license to operate as a non-banking financial company (NBFC), and acts as a distributor to connect lending partners to borrowers.
“Our channel reviews of some lending partners revealed that they are re-examining their relationship with Paytm which in the long run could lead to reduced business lending revenues if the partners downsize or terminate the their relationship with Paytm. AB Capital, one of Paytm’s largest lending partners, has reduced its BNPL exposure to Paytm from a high of Rs20bn to Rs6bn today and is expected to further reduce it in our view. well
India’s central bank last week said it would take supervisory action and impose business restrictions after “persistent non-compliance” with rules, its first comment after a clampdown on Paytm last week has raised questions about the future of the leading financial services company.
Shaktikanta Das, the Reserve Bank of India (RBI) governor, said that the central bank regularly engages with regulated entities bilaterally and prompts them to take corrective action. When the central bank acts, “it is always proportionate to the gravity of the situation,” Das said at a media briefing. “All our actions, as a responsible regulator, are in the best interest of systemic stability and protecting the interests of depositors or customers,” he added.