Brokerage firm Macquarie has come out with a report on Paytm, giving it an underperform rating and setting the target price for the fintech company’s shares at Rs 900. The stock was trading at Rs 1168.8, down 5 per cent from the day’s opening, on the BSE at the time of publishing.
“Post the various business updates and results, we believe our revenue projections, particularly on the distribution side, is at risk and hence we pare down our revenue CAGR from 26 per cent to 23 per cent for FY21- 26E. We are roughly cutting revenue estimates for FY21-26E on an average by 10 per cent every year due to lower distribution and commerce/cloud revenues offset partially by higher payment revenues,” the report said.
“We cut our earnings (increase our loss projections) by 16-27 per cent for FY22-25E owing to lower revenues and higher employee and software expenses. We cut our TP sharply by about 25 per cent owing to a lower target multiple of 11.5x (Price to Sales ratio) (from 13.5x earlier) and lower sales numbers,” it added.
Macquarie analysts also flagged senior management's attrition in the company, its average merchant loan size at sub-Rs 5,000 levels over the past year and regulatory uncertainty in fintech and insurance as concerns for the stock.
In two earlier reports just on the heels of Paytm’s listing on the bourses in November last year, the brokerage firm had set the stock’s target price at Rs 1,200. Since then, the company’s share price has fallen 40 per cent as the market has punished it for a thinly spread out business model, scant revenues and an unclear path to profitability. While Paytm valued its IPO at Rs 149,000 crore ($20 billion), it currently has a market capitalisation of around Rs 76,000 crore ($10.3 billion).
In its first quarterly earrings post listing in November, the company said its net loss widened 11 per cent to Rs 482 crore in the quarter ended September (Q2) on a year on year basis, and increased 28 per cent compared to the quarter ended June. Revenue from operations grew 64 per cent YoY to Rs 1,090 crore in Q2FY22, while total expenses jumped to nearly Rs 1,600 crore from Rs 1,170 crore a year ago.
Its commerce and cloud services revenue grew by 47 per cent YoY to Rs 244 crore. Revenues from payment and financial services went up by 69 per cent y-o-y to Rs 843 crore, driven by 52 per cent growth in non-UPI payment volumes (GMV) and growth from financial services
Revenue from payment services to customers was up 54 per cent Y-o-Y to Rs 354 crore, driven by increase in non-UPI payment usage on our consumer platform. Revenue from payment services to merchants was up 64 per cent Y-o-Y to Rs 400 crore (run-rate of greater than $200 million) driven by non-UPI payment volume growth in payment gateway and growth in devices.
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