Paytm shares plunged 9% today; bear case target at Rs 180, says Macquarie

Shares of One 97 Communications Ltd (Paytm) fell 9 per cent in Tuesday's trade after a foreign brokerage Macquarie cut its target price on the stock to Rs 275 compared with Rs 650 earlier.  Macquarie suggested a target of Rs 180 in its bear case scenario that factored in a 75 per cent decline in distribution revenues against 60-65 per cent fall in its base case.

"Further, its cash burn assumption would increase to 75 per cent against 50 per cent in our base case scenario. This implies valuation of Rs 180 vs Rs 275 in our base case scenario," it said.

In its bull case scenario, Macquarie said it has factored in a 25 per cent decline in distribution revenues against 60-65 per cent in our base case scenario. "This clearly assumes partnership and limited scale down from the lending partners. Further, our cash burn declines to 25 per cent vs 50 per cent in our base case scenario. This implies valuation of Rs 540 vs Rs 275 in our base case scenario," it said.

Paytm shares: Macquarie slashes Paytm target price to Rs 275 from Rs 650. Here's why

Paytm shares fell 8.71 per cent to hit a low of Rs 385.75 on BSE. Macquarie said there could be an increase in loss estimates by 170 per cent over FY25 and 40 per cent over, factoring in 60-65 per cent decline in revenues due to lower payments and distribution revenues; while it sees a 50 per cent cash burn rate and 20 times P/E multiple to normalised earnings from its distribution business.

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It was Macquarie, which came out with the first target on Paytm, when the scrip got listed back in 2021. Macquarie had then suggested a target of Rs 1,200 on the stock just ahead of Paytm's listing. The target was later met. It later suggested a target as low as Rs 450, before turning positive on the stock. The latest target price by Macquarie is its lowest since the Paytm listing.

"Post the recent regulatory changes and diktats, Paytm now faces a serious risk of exodus of customers (overall 330mn customers and 110mn MTUs – monthly transacting users and merchant subscription network of 10.6mn) which significantly jeopardises its monetisation as well as its business model. We cut revenues sharply as we reduce both payments and distribution business revenues. Moving payment bank customers to another 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 Feb 29th deadline will be an arduous task," Macquarie said.

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