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Business News/ Markets / Stock Markets/  Paytm shares: Emkay Global initiates coverage with ‘Reduce’ call, expects 13% downside
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Paytm shares: Emkay Global initiates coverage with ‘Reduce’ call, expects 13% downside

Paytm share price has corrected around 55% following the recent regulatory actions, echoing the expected business and revenue dislocation in the Payments and Financial Services verticals, which was aggravated by high Key Management Personnel (KMP) attrition.

Paytm shares have eroded around 85% of its value from its IPO price after its debut in November 2021. (Photo: Bloomberg)Premium
Paytm shares have eroded around 85% of its value from its IPO price after its debut in November 2021. (Photo: Bloomberg)

Fintech major Paytm is still in the disruption phase and its business normalization and growth re-acceleration is likely to be a long drawn out process. The company may not turn EBITDA-positive before FY28 and net profit-positive by FY29, Emkay Global said. 

Paytm share price has corrected around 55% following the recent regulatory actions, echoing the expected business and revenue dislocation in the Payments and Financial Services verticals, which was aggravated by high Key Management Personnel (KMP) attrition. 

Paytm shares have eroded around 85% of its value from its IPO price after its debut in November 2021. Paytm stock hit a record low of 310 apiece on May 9.

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Emkay Global initiated coverage on One 97 Communications, the parent company of Paytm, with a ‘Reduce’ rating and a target price of 300 per share, implying a downside of nearly 13% from Wednesday’s closing price . In its bull-case scenario, the brokerage has Paytm share price target of 470 apiece and its bear-case fair value is 140 per share.

“We believe Paytm’s path to profitability will be arduous, mainly due to higher operational burn in Payments, given absence of the high-MDR Wallet and rising share of low MDR UPI business; its jeopardized monetization strategy, with sharp slowdown in Financial Services revenue amid rising asset quality and partner attrition/business scale-down risks," said Anand Dama, Senior Research Analyst at Emkay Global Financial Services.

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The brokerage firm believes the Reserve Bank of India’s (RBI) recent suspension of the Paytm Payment Bank’s high MDR wallet business will not only erode Paytm’s Wallet Gross Merchandise Value (GMV) and hurt Payments margin, but impact customer engagement too, as it is a hook product for many customers. This will call for higher cash burn for retaining and engaging customers on the App. 

Factoring in the revenue slowdown, margin pressure and the operational burn, it believes Paytm’s Payments business would see losses for a prolonged period, unless MDR for UPI is made broad-based across P2M categories by the government or regulator.

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Moreover, its loan distribution business is expected to witness sharp slowdown on rising asset quality and regulatory noise, and on partner attrition risk.

“We believe that recent regulatory actions (higher risk weights), rising asset quality noise in low-ticket unsecured loans, and increasing risk of further partner attrition/scale-down could derail the business momentum in the near-to-medium term. This could even compel the company to pivot from its LSP (lending service provider) position toward on-balance sheet lending, subject to securing the NBFC license," Dama said in a note. 

He expects loan disbursement to dip in FY25E and gradually improve thereafter, reporting 10% CAGR over FY24-28E, subject to no further disruption.

At 11:25 am, Paytm shares were trading 0.77% higher at 345.90 apiece on the BSE.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 16 May 2024, 11:13 AM IST
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