Macquarie sees Paytm stock at Rs 900 in a year, here's why

Shares of Paytm's parent One 97 Communications fell over 6% today after global brokerage Macquarie slashed the target price by 25%. Macquarie Securities India suggested that the firm's future earnings growth may be worse than it had earlier forecast. One 97 Communications stock has lost 13.28% in the last five days.

The stock touched an intraday low of Rs 1,153.9 , down 6.33% on BSE. One 97 share is trading lower than 5 day, 20 day, 50 day, 100 day and 200 day moving averages. The stock has lost 13% since the beginning of this year and fallen 25.81% in a month.

Total 5.76 lakh shares of the firm changed hands amounting to a turnover of Rs 68.38 crore.

Market cap of the digital payments firm slipped to Rs 75,060 crore on BSE.

The brokerage firm reduced its price target for the stock by 25 percent to Rs 900 from the Rs 1,200 earlier. This amounts to a downside of 28 percent from the January 7 close.

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Macquarie kept its 'underperform' rating on the stock unchanged while slashing the price target. Macquarie has given a negative forecast for the company at a time when the stock is already down over 38 percent from its high of Rs 1,955 on November 18.

"Post the various business updates and results, we believe our revenue projections, particularly on the distribution side, are at risk," Macquarie said in a note.

The brokerage slashed its estimate for Paytm's revenue by an average 10 percent per year till 2025-26 due to lower distribution and cloud revenue, which has only partially been offset by higher sales from payment operations.

Macquarie sees Paytm's revenue to grow at 23 percent in the next five years compared to 26 percent earlier.

Macquarie expects regulatory headwinds as the "elephant in the room" for Paytm. The Reserve Bank of India's latest plan to limit charges on digital payments may affect the company's revenue significantly, the brokerage firm said.

The recent rejection of Paytm's application for insurance broking also highlighted the risk that the fintech major faces in clearing regulatory hurdles.

"Senior executives have been resigning from Paytm, which is a cause of concern and could impact business in our view if the current rate of attrition continues," Macquarie noted.

Macquarie has also raised concerns over Paytm's lending operations, which the management had referred as an important growth driver before the initial public offering.

Macquarie said that Paytm's average loan ticket size has been falling and stands at below Rs 5,000. "At this size, we don't think it is doing many merchant loans and most of the loans are small value BNPL (buy now pay later) loans. Hence, the eventual distribution fees realised by them are likely to be much lower than our earlier estimates," Macquarie said.

Vijay Shekhar Sharma-led One 97 Communications made a weak debut on November 18 last year. The share closed 27.25% or Rs 585.85 lower at Rs 1,564 compared to the IPO price of Rs 2,150 on BSE.

Earlier, the stock made its debut at Rs 1,950, a discount of 9.3% to the issue price. On NSE, the share closed 27.44% lower at Rs 1,560 compared to the issue price. The share closed at the lowest point of the session on both bourses.