Paytm plunges to record low as Macquarie Securities sees regulatory headwinds

Shares of Paytm parent One97 Communications fell more than 2 percent to a 52-week low after Macquarie Securities India suggested that the company's future earnings growth may be worse than it had earlier forecast.

The brokerage firm slashed its price target for the stock by 25 percent to Rs 900 from Rs 1,200 earlier, implying a further downside of 28 percent from the January 7 closing. Macquarie retained its 'underperform' rating on the stock.

Macquarie's pessimism for the company comes when the stock has already fallen more than 38 percent from its high of Rs 1,955 on November 18, which followed a disastrous debut on Dalal Street.

"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 cut 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 now expects Paytm's revenue to grow at 23 percent in the next five years as against 26 percent earlier.

Macquarie sees regulatory headwinds as the "elephant in the room" for Paytm. The Reserve Bank of India's latest proposal to cap charges on digital payments could impact 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.

More importantly, Macquarie is concerned over Paytm's lending operations, which the company's management had touted as an important growth driver before the initial public offering. Macquarie noted that Paytm's average loan ticket size has been declining 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.

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