Paytm shares tank 3% amid selling spree; here's what brokerages say

Shares of Paytm (listed as One 97 Communications) tanked 3 per cent to hit an intraday low of Rs 1,592.35 on BSE amid the ongoing selling spree. The stock has been on a roller coaster ride since the company made its debut on Dalal Street.
 
The shares have been in a downward spiral in the last five trading sessions. However, the stock rose 2 per cent to hit an intraday high of Rs 1,673.45 but failed to hold the gains on Thursday. At 12:05 hours, it was trading 1.84 per cent lower at Rs 1606.50 on BSE. Market cap of the firm fell to Rs 1,04,145.16 crore.
 
Paytm initiated its journey as a public company with a 27 per cent fall over its IPO (initial public offering) price on November 18. The scrip listed at a discount of 9.30 per cent at Rs 1,950 on the NSE against the issue price of Rs 2,150 per share.
 
Q2 earnings
 
The company extended its losses in the second quarter (July-Sept) to Rs 481.70 crore from Rs 376.60 crore in the first quarter (April-June) of 2021-22. The total income, however, increased by 19.62 per cent to Rs 1,134.50 crore in the same period.
 
The first half losses (April-Sept) stood at Rs 858.30 crore in 2021-22 as compared to Rs 723.60 crore in 2020-21. The total income jumped by 47.95 per cent to Rs 2,082.50 crore in the same period.
 
Brokerage view
 
Brokerage firm JM Financial has a 'Sell' rating on the stock with a target price of Rs 1,240 per share. Paytm faces stiff challenges in its customer acquisition engine and it could slow down its revenue growth in the core payments business, it said.
 
“We forecast GMV CAGR of 41.1 per cent, revenue CAGR of 36.1 per cent and GMV/MTU CAGR of 18.2 per cent over FY21-26E for Paytm. However, even with our robust growth expectations (which in turn are a function of its ability to fund MTU growth through cashbacks, discounts), and an EBITDA breakeven by FY27E, we find valuations rich and the path to profitability fraught with high execution risks in context,” it added.
 
However, Dolat Capital initiated the coverage on the stock with a target price of Rs 2,500 per share. It said that Paytm has emerged from the pure ‘want’ category to the ‘need’ status – this positions it as one of the strongest digital brands to garner a significant share of opportunities that will evolve in the Indian Internet ecosystem.
 
"We have built-in 40 per cent CAGR growth in revenues over next decade led by its trifecta drivers of MTUs growing 10x to 500mn, more services cross-uses and its eventual transition from Agent-to-partner-to-manufacturer of financial services and commerce; which in turn would drive profitability (turns profitable in FY26E) and cashflow profile of the company," it added.
 
Foreign brokerage Macquarie said that the stock may continue to underperform and kept its target price unchanged at Rs 1,200 after Paytm declared its second-quarter results.
 
"Paytm's valuation, at around 26x FY23E Price to Sales (P/S), is expensive especially when profitability remains elusive for a long time," it said in a note.
 
Meanwhile, the digital payments major launched a ‘transit card’ through its payments bank subsidiary for metro, bus, rail, and parking payments. The company said that the first phase of the rollout is being launched in collaboration with Hyderabad Metro Rail, Ahmedabad Metro and the Delhi Airport Express Line, where users can leverage the power of seamless transactions.
 
Under the initiative, the company said that it offers the National Common Mobility Card (NCMC) interoperable physical mobility card, which drives the government’s One Nation, One Card initiative.