- RBI’s restrictions on Paytm Payments Bank prompt brokerages to revise target prices for One97 Communications’ stock.
- Macquarie downgrades Paytm’s stock, forecasting a revenue decline of 60-65% due to reduced payments and distribution revenue.
- Dolat Capital Markets remains bullish, suggesting Paytm has already factored in potential risks from the event.
- Jefferies highlights a direct impact of 20-30% on Paytm’s EBITDA and potential reputational damage to lending partnerships.
- Paytm’s stock experiences a steep decline of over 50% in the past two weeks, reflecting market concerns amid regulatory constraints.
Paytm’s target price Introduction:
Following the Reserve Bank of India’s (RBI) restrictions on Paytm Payments Bank (PPB), brokerages lowered their target prices for One97 Communications (Paytm). While the limits have no direct influence on Paytm’s loan operations, brokerages have different perspectives on the overall impact. This article examines the reactions of major brokerages and their altered target prices for Paytm’s stock.
Brokers React To RBI Restrictions:
It’s been two weeks since the RBI introduced PPB limits, forcing foreign brokerages such as CLSA, Morgan Stanley, Jefferies, and Bernstein to cut their Paytm target prices by 20-60%. Macquarie appears as the most conservative, with the largest target price reduction.
Macquarie’s View:
On February 13, Macquarie downgraded Paytm’s stock to “underperform” and reduced its target price to Rs 275 from Rs 650. The business predicts a 60-65 percent revenue decline for One97 Communications due to lower payments and distribution revenue. Furthermore, Macquarie’s channel checks reveal potential issues among Paytm’s lending partners, affecting the company’s reputation.
Contrasting Opinions:
In contrast, Dolat Capital Markets, the most positive of the brokers, feels Paytm has already built in future event risks. Dolat Capital expects a worst-case scenario impact on EBITDA of Rs 300-500 crore, with the majority of the negative consequences manifesting in the short term, particularly in Q4 FY24 and Q1 FY25.
Jefferies Analysis:
While Jefferies acknowledges that the RBI’s action will have a direct impact on Paytm’s wallets and payments business of 20-30% of its EBITDA, it also emphasises potential reputational impacts on lending agreements, predicting a 20-25% toll on Paytm’s EBITDA. As a result, Jefferies lowers its target price for Paytm’s shares to Rs 500 from Rs 1,050.
Current Stock Performance:
Following these revisions, Paytm’s stock, which closed at Rs 380 on the NSE, has fallen by more than 50% in the last two weeks. The market reaction highlights substantial concerns about Paytm’s future performance in the face of regulatory restraints.
Conclusion:
The varying perspectives among brokerages reflect the uncertainties surrounding Paytm’s prospects in light of RBI regulations. While some see significant revenue declines and reputational damage, others feel Paytm has already factored potential hazards into its forecast. As the company faces these problems, investors remain cautious, keenly following developments and reevaluating their investment plans in India’s growing digital payment environment.