Macquarie slashed its 12-month price target on One97 Communications Ltd., the parent company of digital payments company Paytm, citing increased regulatory scrutiny. Macquarie, which predicted Paytm’s downfall before the IPO, lowered its target to Rs 275 ($3.3), the most brutal of any major brokerage firm.
Paytm, which ended Monday’s trading session at 419.85 Indian rupees, is reeling from the Indian central bank’s clampdown. The Reserve Bank of India recently ordered Paytm to virtually shut down Paytm Payments Bank, a Paytm partner that processes all its transactions.
The analyst group, led by Suresh Ganpathy, wrote in a note on Tuesday that it believes Paytm will see a sharp decline in revenue and that the regulatory crackdown poses a “serious risk of customer exodus.” At Rs 275, Paytm’s market capitalization would have shrunk to around $2.1 billion.
“We slashed revenue as we reduced revenue from the payments and distribution business (60-65% during FY25/26E). Moving customers from payment banks to other bank accounts or moving related merchant accounts to other bank accounts will require KYC (Know Your Customer) to be performed again based on our channel checks with partners, indicating that the migration within the deadline of February 29 from the RBI will be an arduous task. .”
Paytm, which makes most of its money through loans, will also face difficulties in retaining its lending partners, Macquarie added. “Our channel checks with some lending partners reveal that they are reconsidering their relationship with PayTM, which could eventually lead to a decline in revenue from the lending business in case the partners reduce or end their relationship with PayTM. AB Capital, one of PayTM’s largest lending partners, has already reduced its BNPL exposure to PayTM from a high of Rs 20 billion to Rs 6 billion currently and, in our view, is expected to go down further further “.
India’s central bank said last week that it takes supervisory action and imposes trade restrictions only after “persistent non-compliance” with rules; His first comment after a crackdown on Paytm last week has raised existential questions about the future of the leading financial services company.
Reserve Bank of India (RBI) Governor Shaktikanta Das said the central bank always interacts bilaterally with regulated entities and urges them to take corrective measures. If the central bank takes action, “it will always be proportional to the severity of the situation,” Das said at a news conference. “All our actions, being a responsible regulator, are in the best interest of systemic stability and the protection of the interests of depositors or clients,” he added.