Paytm’s share price showed signs of recovery on Thursday, though it remained the worst performer in the BSE500 pack.
Amid this recovery, some brokerages adjusted target prices after Paytm’s revelation during an analyst meet that it would be scaling down monthly disbursements in its small-ticket ‘postpaid’ segment.
A Business Today report cited Shivaji Thapliyal, Head of Research at Yes Securities, who expressed scepticism about Paytm’s transformation narrative, stating, “The key question to ask is what proportion of its overall customer base Paytm would ultimately be able to convert into loan customers in the long run.”
Strategic shift and profitability concerns
Thapliyal raised concerns about the impact on profitability as Paytm shifts focus from a payments-centric model to a loan distribution-focused approach. He questioned the viability of this shift, emphasising the need to understand the long-term customer conversion strategy. Thapliyal disclosed that Yes Securities had a “Sell” rating on Paytm at the time of its IPO and maintains a less-than-bullish ‘ADD’ rating on the stock currently.
Denying speculations and growth projections
Contrary to recent speculations, Motilal Oswal clarified that Paytm is not losing lending partners. The company affirmed its association with seven NBFC partners for loan distribution, with plans to integrate one large bank and two large NBFCs by Q4FY24 and Q1FY25. Motilal Oswal suggested a target of Rs 1,025 ($12.30) on the stock and trimmed disbursement estimates for FY24/FY25, anticipating a calibrated approach in the post-paid segment. The brokerage valued Paytm at 20 times FY28E EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation), factoring in a discount rate of 14 per cent to FY25E.
Analyst downgrades and target adjustments
Morgan Stanley maintained an “equal weight” on Paytm with a target of Rs 830 ($9.96), while JPMorgan and Goldman Sachs downgraded the stock to ‘neutral’. Jefferies retained a ‘Buy’ rating but lowered the target to Rs 1,050 ($12.60), and Bernstein reduced its target to Rs 950 ($11.40) from Rs 1,100 ($13.20).
Impact on stock rally and future expectations
JM Financial noted that the rally in Paytm shares was driven by strong loan distribution business revenues and operational efficiencies. However, with an abrupt pullback on this growth lever, the brokerage anticipates a negative reaction in Paytm’s stock price until growth trends stabilise. JM Financial revised Paytm’s FY24E EBITDA loss and adjusted EBITDA, lowering the target price to Rs 1,120 ($13.44).
