Brokerages Oscillate As Paytm Shares Continue Tumble

Paytm Stock Continues Free Fall, Brokerage CLSA Upgrades Outlook

SUMMARY

Upgrading its outlook, CLSA, however, kept the target price of Paytm unchanged at INR 650

Citing more than $1 Bn in cash on Paytm’s balance sheet, CLSA noted that the current valuations were comfortable and more had to be done to improve investor confidence

Paytm stock closed at INR 461.75 on the BSE on November 28

In some positive news for Paytm, brokerage firm CLSA has initiated a ‘BUY’ rating for the fintech stock.

Upgrading its outlook, CLSA, however, kept the target price of Paytm unchanged at INR 650, still a far cry from the current INR 461.75 reported at the end of intraday trading on BSE on November 28.

Noting that the Paytm stock had plummeted 25-30% in the past two weeks, CLSA said that the price-correction had made the ‘risk-reward favourable.’

Citing more than $1 Bn in cash on Paytm’s balance sheet, the brokerage firm noted that the current valuations were comfortable but more had to be done to improve investor confidence.

“The company has more than $1 Bn cash on the balance sheet and cash burn should end in another 4-6 quarters, in our view. Paytm trades at 16X EV/core EBITDA on an FY26 basis, discounted back to FY24… We keep all our estimates and TP unchanged. Upgrade to BUY from SELL with a TP (target price) of INR 650,” said the CLSA report.

The CLSA report, however, also highlighted that the major near-term risk continued to the massive selloff by pre-IPO investors.

The brokerage also pointed out that Paytm’s net take-rate had improved from nil to 13 bps in the past two years, driven largely by lower processing charges and the introduction of its ‘Soundbox’ product at its merchants. CLSA also raised concerns over the large fixed cost structure, which it said Paytm needs to somehow curtail.

CLSA also estimated that Paytm’s revenue potential from loan disbursals could surge beyond the INR 30 Bn mark over the next five years while the revenue from cloud services could double to INR 14 Bn between FY22 and FY25.

Others Not So Bullish

While CLSA upgraded its outlook for Paytm stock, there was no such respite from fellow brokerage firm JM Financial. The JMFL stuck to its SELL rating with a target price of INR 600.

The brokerage firm noted that it expects the fintech major’s revenue to grow at a strong CAGR of 32% over FY22-26E, driven largely by further scaling of its financial services business.

“While (the) financial services business for Paytm is relatively new, we see (a) strong growth runway going ahead given the large untapped opportunity. Further, we believe (the) incremental path to profitability remains primarily contingent on continued improvement in overall revenue, coupled with the reduction in marketing and cashback spends and ESOP costs for Paytm,” added the JMFL report.

Meanwhile, investment banking major Morgan Stanley on Monday said that it will closely monitor RBI’s actions regarding Paytm. Citing the recent public fiasco where RBI directed Paytm Payments Services to reapply for its online aggregator licence, Morgan Stanley said that this has ‘increased regulatory uncertainty’ for the fintech giant.

Morgan Stanley will also keep an eye on the fintech major for RBI’s mandates around matters, including final guidelines on digital payment charges and the existing ban on Paytm Payments Bank to onboard new customers.

Morgan Stanley currently has set a target price of INR 695 per piece for Paytm stock with an equal weight rating.

Fintech major Paytm has been witnessing a major bloodbath at the stock markets. In what was a gloomy one-year anniversary of its market listing, Paytm shares fell to a record low of INR 439.60 post the intraday trading on November 24. From a record high of INR 1,961 back in November last year, Paytm shares have lost most of its sheen. Since then, the tumble has wiped off more than 76% of investor wealth.

The downturn has largely been led by adverse market sentiment. Apprehensions of a recession, geopolitical crisis involving Russia and Ukraine as well as tightening monetary policies across the globe, had led to a volatile market led by bearish sentiment.

New-age tech stocks such as Paytm have especially been in the line of fire owing to higher valuations and no clear path to profitability. Wary investors have dumped the stock in droves, even as pre-IPO investors also flee to save what they can.

Such has been the chaos that even tech investor SoftBank recently offloaded its 4.5% stake in Paytm in a bulk deal.

But as stock prices fall to record lows and steer towards price-correction, it remains to be seen whether investors are assuaged to stay back or markets will plummet to further lows.