Paytm stock sheds another 8.5% after Macquarie cuts target price to ₹275

The decline of Paytm seems to be continuing without immediate respite, as the stock of One 97 Communications, Paytm's parent company, reached yet another all-time low of ₹386.25 in today's trading session, marking an 8.60% decrease. This marks the first instance since its listing that the stock has fallen below the ₹400 threshold.

The stock came under pressure after the Reserve Bank of India (RBI) barred Paytm Payments Bank from conducting certain operations following a system audit report and subsequent compliance validation report of external auditors.

Following recent developments, several brokerages have adjusted their outlook on the company, leading to rating downgrades. In a recent report, global brokerage firm Macquarie also downgraded stock's rating to 'Underperform' and significantly lowered its target price to ₹275 per share from an earlier target price of ₹650, citing the company's sharp reduction in revenues across various segments.

This revised target price indicates a 35% downside potential from the current trading price of ₹396 per share.

Also Read: Retail investors amped up Paytm holdings in Q3 before curbs crashed the stock

"Post the recent regulatory changes and diktats, Paytm now faces a serious risk of the exodus of customers (overall 330 million customers and 110 million MTUs—monthly transacting users and merchant subscription network of 10.6 million), which significantly jeopardises its monetization as well as its business model," the brokerage said.

As a result of these concerns, Macquarie has sharply reduced revenue projections, particularly in the payments and distribution segments, forecasting a decline of 60-65% over the fiscal years 2025 and 2026.

"Moving payment bank customers to another bank account or moving related merchant accounts to another bank account will require KYC (know your customer) to be done again based on our channel checks with partners, indicating that migration within RBI's February 29th deadline will be an arduous task," the brokerage added. 

According to the brokerage channel checks, some lending partners are already looking at their relationship with Paytm, which the brokerage believes could lead to a decline in lending business revenues if partners scale down or terminate their relationship with Paytm. 

Also Read: MSCI Rejig: PNB, BHEL, NMDC, among five additions to India Standard Index

The company's major lending partner, AB Capital, has reduced its exposure to Paytm's Buy Now, Pay Later (BNPL) services significantly. Initially at a peak level of ₹20 billion, AB Capital has now lowered its exposure to ₹6 billion. The brokerage anticipates this reduction to continue even further.

Trades 80% discount to the IPO price

After the RBI's decision on February 1st, Paytm's stock experienced a sharp decline of 20% in the following two trading days. This downward trend has persisted, with the stock now having lost nearly 50% of its value in just 9 trading sessions, including today.

Also Read: No review of action against Paytm Payments Bank: RBI gov Shaktikanta Das

At its trading price of ₹396 as of 10:45 am, the stock is trading at an 81% discount compared to its issue price of ₹2,150 apiece, posing challenges for investors who entered the stock during the initial public offering and have maintained their positions to date.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.