Shares of Paytm fell to 1,165 ($15.71), the lowest since its market debut in November following the country’s largest-ever initial public offering, as a leading brokerage house reduced its price on the payments stock even lower.
At 1.55 p.m. India standard time, the stock had fallen 5.3 percent from its opening price of $1,226. Paytm, which has struggled to raise its stock price since its inception, has fallen 45 percent from its IPO price of $2,150 ($28.9). At the time of publication, the company’s market cap was $10.2 billion, less than half of what it had sought for its debut and less than the $16 billion valuation at which it closed a financing round in late 2019.
The price drop followed a report on Monday by brokerage house Macquarie, in which it maintained its lowest rating on One97 Communications, the parent company of Paytm, and reduced its target price to 900 ($12.14), down from 1,200 that it had assigned ahead of the market debut on November 18.
At the time of the company’s market launch, Macquarie was the only brokerage firm that had such a pessimistic view of Paytm’s prospects. Analysts at Bernstein predicted that Paytm’s valuation would range between $21 billion and $24 billion. (In November, a Bernstein spokesman did not reply to a request for comment.)
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“In light of the different business updates and results, we believe our revenue estimates, particularly on the distribution side, are in jeopardy, and hence we reduce our revenue CAGR from 26 percent to 23 percent for FY21-26E.” “We are substantially lowering revenue projections for FY21-26E by 10% on average per year due to weaker distribution and commerce/cloud revenues offset in part by stronger payment revenues,” Macquarie analysts said Monday.
“Due to lower revenues and greater labour and software expenses, we cut our profitability (raise our loss predictions) by 16-27 percent for FY22-25E.” We reduced our target price by 25% due to a lower target multiple of 11.5x (Price to Sales ratio) (down from 13.5x previously) and lower sales figures. Maintain UP with a new target price of Rs900.”
According to the brokerage firm, the RBI’s planned digital payments regulations might curb wallet costs, harming Paytm’s business, which still accounts for 70% of the firm’s overall gross revenue. Other concerns that could affect the firm’s future outlook, according to Macquarie, include the departure of senior Paytm executives and the falling ticket size for loans given by Paytm.
Morgan Stanley analysts designated Paytm’s stock as “overweight,” with a target price of $1,875 ($25.2), stating the company was “ideally positioned to benefit on expected acceleration in digital distribution of financial services/commerce in India.”
“Huge TAM, India’s particular digital architecture, and a regulatory-friendly partnering approach, we feel, are significant enablers.” India is underserved in financial services, and we anticipate robust growth across all areas. More importantly, penetration of third-party digital distribution of financial services is significantly low, and we will see strong acceleration over the next five years – this will be aided by India’s distinct rails around identity, payments, and data sharing,” they wrote in a December 18 report to clients.
“We also feel that PAYTM’s monetary services are synergistic, consistent with the regulatory thought process, and scalable.” Balance-sheet risk is modest, and some important value adds include PAYTM’s technology ability to harness alternative data sets and develop tailored products.