Digital payments and financial services company Paytm is likely to see a hit of Rs 400 crore on revenues and Rs 500 crore on the company's EBITDA if it makes rentals zero on all of its sound devices for merchants, Macquarie said in a report.
Macquarie maintained its Underperform call on the stock with a target price of Rs 450.
The report comes a day after Moneycontrol reported that Paytm's Soundbox, which announces receipt of payments for shopkeepers, is seeing tough competition from rival PhonePe.
According to Macquarie, the impact amounts to 8 percent on revenues and 20 percent on EBITDA for the previous financial year of FY22.
"Based on our channel checks, per device, fintech companies incur a maintenance cost of Rs 25 per unit as that is the SIM card costs that they incur. In addition, there will be some back-end costs. Hence the total costs incurred would be around Rs 100 cr," Macquarie said.
Moneycontrol was the first to report that Unified Payments Interface (UPI) leader PhonePe launched the device in July at a monthly rental of Rs 49 and an upfront cost of just Re 1. Since its launch, PhonePe has already installed 100,000 devices.
Paytm, which was the first to take a shot at solving the problem of helping merchants to confirm receipt of UPI QR code-based transactions by launching its Soundbox in 2020, has around 30 lakh devices installed.
Currently, the company charges different rentals for different merchants ranging from zero, going up to Rs 125 in some cases.
These speakers are crucial sources of revenue for companies that operate UPI apps. The apps don't generate revenue for fintechs because merchants don't have to pay them anything for accepting UPI payments.
On the competitive intensity, Macquarie said, "In our view, competitors like PhonePe which are not listed can continue to be loss leaders and try to capture market share. Paytm being a listed entity has compulsions to show profits."
However, once these companies onboard merchants and customers, they can cross-sell other revenue-generating products. Paytm offers merchant loans.
The Soundbox has helped Paytm scale up its merchant lending. Paytm said disbursals of merchant loans had grown 178 percent year-on-year to Rs 565 crore in the March quarter. While the company doesn't lend from its own books, it enjoys a single-digit percentage point take rate from banks and nonbanking finance company partners.
The average size of these loans is Rs 1.3 lakh to Rs 1.5 lakh and the average tenure is 12 to 14 months.The note by Macquarie added, "The end game is to ultimately lend to merchants and make money. We have repeatedly argued that many Fintechs in India are just digital DSAs (direct selling agents) and building a balance sheet is critical to achieving success."