Paytm shares down 46% from IPO price as concerns persist

Over the last one month, the stock has lost 26.1% and over the last five trading sessions, it has fallen 13.6% while the Sensex gained 2%.

That the co-founder of a unicorn should have stooped to the level of—allegedly—abusing an employee of Kotak Mahindra Bank (KMB) and threatened him is quite unbelievable. Reserve Bank of India (RBI), which has handed BharatPe and Centrum Financial, a licence for a bank, should take note of this and, perhaps, even reconsider its offer.One wants to believe there was no altercation in the first place.
That the co-founder of a unicorn should have stooped to the level of—allegedly—abusing an employee of Kotak Mahindra Bank (KMB) and threatened him is quite unbelievable. Reserve Bank of India (RBI), which has handed BharatPe and Centrum Financial, a licence for a bank, should take note of this and, perhaps, even reconsider its offer.One wants to believe there was no altercation in the first place.

Shares of One97 Communications, the parent company of Paytm, hit yet another low of Rs 1,151.00 on the BSE on Monday, after foreign brokerage firm Macquarie maintained its ‘underperform’ rating on the stock. Over the last one month, the stock has lost 26.1% and over the last five trading sessions, it has fallen 13.6% while the Sensex gained 2%. Analysts have flagged off several concerns ranging from lower earnings estimates, rich valuations to senior management departures.

The brokerage further slashed its price target to Rs 900 from Rs 1,200 earlier, citing more pain ahead in the earnings growth and regulatory matters, alongside other factors. At close, the stock was down 6.01% at Rs 1,157.90 on Monday. Paytm now trades lower by 46.14% from its offer price of Rs 2,150, resulting in huge losses to its investors. On the valuation front, the stock currently trades at 17x FY23E sales and continues to be expensive.

“Post the various business updates and results, we believe our revenue projections, particularly on the distribution side, are at risk, and hence we pare down our revenue CAGR from 26% to 23% for FY21-26E. We are roughly cutting revenue estimates for FY21-26E on an average by 10% every year due to lower distribution and commerce/cloud revenues offset partially by higher payment revenues. We cut our earnings (increase our loss projections) by 16-27% for FY22-25E owing to lower revenues and higher employee and software expenses,” Macquarie said in a note on Monday.

The brokerage firm also highlighted that the proposal of the Reserve Bank of India to cap wallet charges could create more pain for Paytm as the company’s 70% overall gross revenues come from payments. Additionally, Paytm’s application for insurance broking was recently rejected by the Insurance Regulatory and Development Authority – making the banking license route even more arduous amid regulatory hurdles.

Exits in the top management can also impact its business going forward. According to a report, three senior employees resigned from the company in December 2021. “Senior executives have been resigning from Paytm which is a cause for concern and could impact business in our view if the current rate of attrition continues,” Macquarie said.

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