Paytm shares at Rs 275? Brokerages suggest another 25% downside in stock

Shares of One 97 Communications Ltd, the parent company of fintech platform Paytm, dropped about 4 per cent during the trading session on Thursday after the brokerage firms were not very positive on the new age internet player, with most of them slashing their target prices on the counter.

Shares of Paytm have been marred since January 31, when the Reserve Bank of India (RBI) ordered Paytm Payments Bank (PPBL) to wind-up its operations on the back of irregularities. The stock has tumbled about 54 per cent from its price at Rs 761 on January 31, while its down 65 from its 52-week high. The stock is down 84 per cent from its IPO price of Rs 2,140.

Paytm reported widening of its consolidated net loss at Rs 549.60 crore in the March 2024 quarter from Rs 219.80 crore in the December 2024 quarter and Rs 168.90 crore in the March 2023 quarter last year. Revenue from operations fell 3 per cent year-on-year (YoY) to Rs 2,267.10 crore.

Revenue from operations fell 3 per cent year-on-year to Rs 2,267.10 crore against Rs 2,334.50 crore in the same quarter last year. Paytm said its March quarter results were impacted by temporary disruption on account of UPI transition and permanent disruption because of the PPBL embargo. Paytm has impaired the carrying value of the company's investment in PPBL.

The fintech major said its contribution margin stood 57 per cent including UPI incentives, and 51 per cent excluding UPI incentives. Its Ebitda before ESOP was Rs 103 crore. It was Paytm's first quarter results after the RBI's strict action on the fintech player. Brokerage firms foresee more pain coming in for the stock.

Paytm reported a weak quarter after regulatory actions compelled a severe course correction, resulting in multiple strategic changes by the company to enable long-term sustainable growth while adhering to robust governance and compliance standards. Loan disbursement thus declined sharply even as GMV was better than estimated, said Motilal Oswal Financial Services.

Macquarie has maintained an 'underperform' rating on Paytm with a target price of Rs 275 on the stock, suggesting another fall of 25 per cent in the stock as the brokerage sees March 2024 quarter as tough one and June 2024 quarter is likely to be tougher one for the company.

Macquarie believes that the full impact of RBI regulations will be felt in Q1FY25. According to the overseas brokerage firm, the fintech company needs strong support from the lending ecosystem, and this remains a key monitorable.

Shares of Paytm dropped 3.67 per cent to Rs 368.85 during the trading session Thursday, commanding a total market capitalization of less than Rs 22,750 crore. The scrip had settled at Rs 368.85 in the previous trading session on Wednesday.

"Adjusted Ebitda came in better than our estimates. We estimate overall disbursements to decline 8 per cent YoY in FY25 as the company follows a distribution-led model and stays away from low-ticket postpaid loans. Merchant and personal loan segments are already seeing a recovery; however, take rates will moderate as the company forgoes collection incentives," it said.

Motilal has cut its earnings estimates and projected Paytm to achieve Ebitda breakeven in FY26. "We value Paytm based on 15 times FY28E Ebitda and discount the same to FY26E at a discount rate of 15 per cent. We thus value the stock at Rs 400, which implies 2.3 times FY26E P/Sales," it added with a 'neutral' rating.

The total GMV in April was 81 per cent of the GMV seen in January. There is a clear improvement from the bottom seen in March 2024, said Bernstein in a recent note. The merchant loans have seen a revival in April after seeing a complete shutdown in February and the volumes are back at 86 per cent of Jan value which is a positive., it said.

On the contrary, it sees a severe impact to the payment business as a combination of payment GMV dropping 20 per cent and the Payment processing margin expectation dropping to 5-6 bps. "Also, Paytm has 'pivoted' to doing more of distribution only loans which has helped limit the decline in financial services revenue," it said.

Paytm reported weak results majorly due to reduction in revenue from Payment services to consumers after RBI’s embargo on PPBL impacting wallets, FASTag and other PPIs; sharp reduction financial services revenue as the value of loans disbursed declined as it completely stopped its Post-paid business in March 2024 citing asset quality deterioration in low ticket segment, said JM Financial.

"We remain watchful of the closure of small ticket postpaid business and pivot towards high ticket lending thereof. Although Paytm has found alternatives for PPBL, we believe on boarding of new customers and revival of high margin products in payments business is contingent on regulatory approvals, seamless migration of accounts and smooth integration," it said, with a 'sell' rating and a target price of Rs 300 on the stock.