Brokerage firm Jefferies has downgraded its rating on Paytm to "underperform" from its earlier rating of "buy." The brokerage has also cut its price target on the stock to ₹500 from ₹1,050 earlier.
This is the lowest price target on the street currently for the Vijay Shekhar Sharma-owned payments aggregator. It is also the only "sell" or equivalent rating among the 16 analysts that track the stock as of date.
Jefferies' downgrade comes after the Reserve Bank of India on Wednesday
directed Paytm Payments Bank to stop deposits or credit transactions or top-ups in any customer account, prepaid instruments, wallets, FASTags, NCMC cards, etc after February 29, 2024, other than any interest, cashback, or refunds which may be credited anytime.
Jefferies in its note said that the RBI's strongly-worded restrictions on Paytm Payments bank reflect concerns on persistent non-compliances.
The brokerage wrote in its note that the direct impact on wallets / payments can be 20% to 30% of EBITDA and reputational impact on lending partnerships can further cause a 20% to 25% impact.
As a result, Jefferies has cut Paytm's financial year 2025 - 2026 EBITDA estimates by 45%, which will also delay profitability. Paytm had reported a net loss of ₹221 crore in the December quarter.
Tightening of corporate governance is the way out of this issue, according to Jefferies.
Excluding Employee Stock Options (ESOPs), Jefferies has cut Paytm's EBITDA estimate by 46% and 44% respectively led by a 7% to 10% cut in payments revenue, a 17% to 24% cut in lending revenue and compression in payments margins.
Macquarie said that the RBI's restrictions are quite serious in their view. In this instance, since the first ban imposed in March 2022 for onboarding new customers, the RBI has continued to identify non-compliance even 22 months later, which indicates that these lapses are quite material.
The brokerage has remained neutral on Paytm with a price target of ₹650.
Citi also remains "neutral" on Paytm with a price target of ₹900. Based on Paytm's assessment, Citi expects a 20% to 35% impact on their financial year 2025 adjusted EBITDA estimates of Paytm.
Therefore, it expects the growth levels for Paytm to decline from 60% year-on-year to 6% to 30% year-onyear to comply with the latest RBI directives.
On the flip side, CLSA maintained its "buy" recommendation on Paytm. It said that Paytm will have to find another bank partner for its payments aggregator business.
However, it said that in case Paytm is unable to find an alternate banking partner, it can again slip into EBITDA loss territory.
A 10% cut in financial year 2025 GMV will reduce CLSA's financial year 2026 and 2027 EBITDA estimates by 12% to 15%.
Another brokerage to have retained a "buy" recommendation on Paytm is UBS. It anticipates nearly 15% of its payments GMV to be at risk post the RBI order. However, it sees no direct impact on lending and UPI operations.
UBS has a target of ₹960 on Paytm.
Shares of Paytm ended little changed on Wednesday at ₹761. They remain 65% below their IPO price of ₹2,150.
First Published: Feb 1, 2024 7:36 AM IST
