Macquarie reduces Paytm rating from outperform to neutral

Macquarie reduces Paytm rating from outperform to neutral

Macquarie analyst Suresh Ganapathy cut One97 Communications' recommendation from outperform to neutral on June 27 on the back of a strong rally. One97 Communications is the parent entity of leading Indian mobile payments and financial services company Paytm. The target price has been set at Rs 800, 4.5% lower than the last traded price.

"After such strong outperformance, we downgrade the stock to Neutral," said the Macquarie report. During the past 19 months, Macquarie has rated Paytm as outperforming once and underperforming once, according to a report by Bloomberg.

A few months of bad performance “could result in lenders withdrawing their credit lines, significantly affecting its ability to grow," stated, Macquarie.

Macquarie analysts, including Suresh Ganapathy write in a note dated Monday that while Paytm does not carry any balance sheet risk on loans originated, it carries significant business and reputation risk.

The brokerage says “a lot more” needs to be done on corporate governance, including getting an independent non-executive Chairman and more independent board members to avoid regulatory lapses.

Also Read | ESOP expenses of listed new-age companies drop amid profitability push, but Paytm bucks trend

Paytm is expected to become profitable by FY26E, according to the research firm, the report added. Paytm's last traded price was Rs 845, as per BSE.

Buoyed by the vast opportunities offered by this high-margin segment, Bank of America (BofA) has raised its target price for One97 Communication by around 19 percent to Rs 1,050, Moneycontrol earlier reported.

Also Read | BoFA sees soundbox as a profitable niche for Paytm, raises price target by 19%

Citing the success of the company's iconic Soundbox, BofA in its last report said, "We expect its momentum in high margin lending and Soundbox business to remain good for at least next 3-4 quarters and see upside risks to consensus estimates."

"Paytm was the first company in India which started deploying soundboxes at scale and in the process created a new market," BoFA highlighted in its report.

Fintech major Paytm was the outlier of the pack as its ESOP expenses rose 80 percent from Rs 809 crore in FY22 to Rs 1,456 crore in FY23. Its net loss amounted to Rs 1,776 crore for the financial year, narrowing from Rs 2,396 crore a year earlier.

Also Read | Paytm leads $6 billion rally as startups seek redemption

The company pulled off the largest IPO ever in India but has since faced a number of challenges.