Paytm hits new low, falls 10% after Macquarie slashes target to Rs 275

Macquarie sharply cut the target price to Rs 275 from Rs 650, driven by a reduction in revenues across various segments

Shares of One97 Communications (OCL), the parent firm of fintech major Paytm, hit a new low of Rs 380.35 on the BSE, as the stock slipped nearly 10 per cent on Tuesday.  

The dip came following Macquarie downgrading the stock to 'Underperform' and the Reserve Bank of India (RBI) governor Shaktikanta Das dismissing the possibility of a review of the central bank’s action against Paytm Payments Bank last month.

Macquarie sharply cut target price to Rs 275 from Rs 650, driven by a reduction in revenues across various segments.

“Post the recent regulatory changes and diktats, Paytm now faces a serious risk of exodus of customers (overall 330 million customers and 110 million MTUs – monthly transacting users and merchant subscription network of 10.6 million) which significantly jeopardises its monetisation as well as its business model,” the brokerage said in a note. 

Meanwhile, other analysts believe the company should now focus on facilitating financial services other than payments using their technology and their platform.

“The company may focus on facilitating financial products such as lending, insurance or mutual funds using their technology and their platform. They should become a facilitator instead of handling money directly since they have demonstrated their ability to build a scale,” said Chokkalingam G, founder of Equinomics.

However, Paytm has temporarily paused lending through its platforms citing ‘operational reasons.’

“Loan origination through our platform has been temporarily paused for operational reasons voluntarily by the company, as communicated during recent earnings calls. New lending activities, including from our lending partners, through our platform, were put on hold for a couple of weeks. However, we would like to stress upon the fact that it is solely due to operational reasons and our relationship with our lending partners remains intact,” the company in response to queries sent by Business Standard. 

In a separate statement, the company clarified that its lending business operates independently of its Paytm Payments Bank (PPBL). 

"The lending business has no direct relationship with PPBL, except in cases where merchants have chosen to use a PPBL account for loan repayments. This represents a small fraction of our operations, around 10 per cent to 15 per cent,"  Bhavesh Gupta, President and Chief Operating Officer (COO), Paytm said. 

It added that it is transferring merchant settlement accounts to alternative banks to ensure loan repayments are not disrupted.  

Analysts believe that the company should accelerate the transfer of merchant accounts from Paytm Payments Bank to third party banks with the February 29 deadline. At least this will allow it to maintain the trust among these merchants even as they move to other banks. Paytm has over 20 million merchants on its platform. 

“The shifting of merchant accounts from Paytm Payments Bank to a third party bank should now be expedited. They should do it in the next two days now, as people will start panicking after February 25,” said Ambareesh Baliga, an independent equity analyst. 

Analysts at Macquarie have cut revenue estimates sharply, as they reduce both payments and distribution business revenues (60-65 per cent over FY25/26E).

“Moving payment bank customers to other bank accounts or moving related merchant accounts to other bank accounts will require KYC (Know your customer) to be done again based on our channel checks with partners, indicating that migration within RBI's February 29th deadline will be an arduous task,” the brokerage firm said.\

Macquarie further stated their channel checks with some lending partners reveal that they are re-looking at their relationship with Paytm which eventually could lead to a decline in lending business revenues in case partners scale down or terminate their relationship with Paytm.

In Q3FY24, the company disbursed 11.5 million loans amounting to Rs 15,535 crore, down from 13.2 million loans worth Rs 16,211 crore in Q2FY24. Its loan disbursals dipped after its decision to reduce the disbursement of small-ticket size loans, specifically those less than Rs 50,000, in the wake of RBI tightening norms for unsecured personal loans in December. 

A person in the know said the company is in discussions with private banks such as HDFC Bank and Axis Bank to transfer its nodal accounts and merchant accounts respectively before February 29. 

Paytm Payments Bank has more than 300 million wallets and 30 million bank accounts, according to the company’s website. 

The Reserve Bank of India last week ordered Paytm Payments Bank to bar most of its businesses, including deposits, by February 29 

On January 31, the regulator said no further deposits or credit transactions or top-ups would be allowed in customer accounts, prepaid instruments, wallets, FASTags, National Common Mobility Card (NCMC) cards, etc., after February 29, 2024, other than any interest, cashback, or refunds that may be credited at any time