13 February 2024 – In Tuesday’s trading session, shares of One 97 Communications Ltd, popularly known as Paytm, witnessed a significant 9% decline. This drop followed a revision in the target price by Macquarie, a foreign brokerage, which lowered it from Rs 650 to Rs 275. Macquarie’s bear case scenario suggests a target of Rs 180, factoring in a substantial decline in distribution revenues.
Impact on Paytm:
Macquarie’s bear case scenario considers a 75% decline in distribution revenues, contributing to increased cash burn assumptions. This, coupled with a lower valuation of Rs 180 compared to the previous base case of Rs 275, reflects the challenging situation Paytm faces. The bear case underscores concerns about revenue decline, cash burn, and the overall valuation of the company.
In contrast, Macquarie’s bull case scenario is more optimistic, assuming a 25% decline in distribution revenues and reduced cash burn. This scenario hinges on strategic partnerships and limited scaling down from lending partners. In this case, the valuation is pegged at Rs 540, offering a more positive outlook compared to the base and bear cases.
Background on Paytm:
One 97 Communications Ltd, founded by Vijay Shekhar Sharma, is the parent company of Paytm. The digital payment giant witnessed significant attention during its listing in 2021, with Macquarie being the first to propose a target of Rs 1,200. The recent cut to Rs 275 signifies a more cautious stance by the brokerage. Post-regulatory changes, Paytm faces challenges such as a potential customer exodus and the need for migration within the RBI’s deadline.
Conclusion:
The downward revision in Paytm’s target price and the bear case scenario highlight the uncertainties surrounding the company. With regulatory changes and potential customer exodus, Paytm navigates a complex landscape, and its ability to address these challenges will significantly impact its future performance. Investors closely monitor developments, especially given the lowered target and cautious outlook by Macquarie.
