Paytm's parent company, One97 Communications, once again witnessed a significant share price decline of nearly 8 per cent on Tuesday. This drop followed a downgrade by the foreign broking firm Macquarie, which lowered its rating for the fintech company to 'underperform.'
Macquarie has reduced the target price for One97 Communications from Rs 650 to Rs 275.
According to Macquarie analyst Suresh Ganapathy, Paytm is at a high risk of losing customers due to the Reserve Bank of India's restrictions on its payments bank, posing a threat to its ability to generate revenue and sustain its business model. The brokerage firm has raised its loss estimates by 170 per cent and 40 per cent for FY25E and FY26E, factoring 60-65 per cent decline in revenues due to lower payments and distribution revenues.
Last month, the Reserve Bank of India placed restrictions on Paytm Payments Bank Ltd (PPB) citing 'persistent non-compliances and continued material supervisory concerns' in the bank. Following this development, the shares of Paytm have been under high selling pressure as uncertainty looms for the fintech application in the digital payments sphere.
"Our channel checks with some lending partners reveal that they are re-looking at their relationship with PayTM which eventually could lead to a decline in lending business revenues in case partners scale down or terminate their relationship with PayTM," the brokerage firm said in its report. It is projecting a 50 per cent cash burn rate and applying a 20x price-to-earnings (P/E) multiple to normalized earnings derived from its distribution business.