Paytm’s fall from grace is the stuff stock market’s cautionary tales are made of. Parallels to the mythical Greek character Icarus who flew too high, a little too soon only to come crashing down might sound dramatic but are rather apt in Paytm’s case.
Gone are the days when freshly minted, self-proclaimed stock market experts on social media would aggressively encourage investors to apply for the Paytm IPO. After the disastrous debut of Paytm on November 18, when the scrip’s freefall wiped out Rs 38,000 crore in valuation. It is only memes and angry fulminations of investors that populate social media platforms.
Paytm pulled off the largest-ever initial public offering in India, but has since faced a number of challenges. Ganapathy cited fintech regulations and stricter compliance norms as potential headwinds — on Friday. The Reserve Bank of India barred the company’s Paytm Payments Bank venture from accepting new customers, adding pressure on the stock.
The average 12-month price target among nine analysts covering Paytm is Rs 1,203, according to data compiled by Bloomberg.
Macquarie Securities India’s Suresh Ganapathy is one of the most bearish analysts on One 97 Communications. It has slashed its price target on the stock by a staggering 35 percent to Rs 450 while maintaining its underperform rating.
Macquarie’s price target for the stock is currently the lowest on the Street.
The brokerage firm has sharply marked down its valuation estimate for Paytm in line with the derating since in global financial technology companies. Ganapathy, in a note, said that the brokerage firm’s valuation for the Indian fintech major is premised on the valuation of global fintech firms.
Macquarie said that global fintech companies have seen their price-to-sales growth multiples slashed to 0.07-0.35 times from 0.3-0.5 times earlier driven by a wider recalibration of technology companies globally due to prospects of higher interest rates in the US.
Suresh Ganapathy, as associate director at Macquarie, in the report highlighted that Reserve Bank of India’s (RBI) recent curb on Paytm Payments Bank has reduced the company’s chances of getting a small finance banking license “thereby impeding its ability to lend”.
“Given this, and competition from other fintechs in the payments space, we remain skeptical about Paytm’s longer-term ability to generate free cash flow,” the Macquarie report read.
Any payments bank that completed five years of operations can opt for a small finance banking license with the RBI. Since Paytm Payments Bank had commenced its operations on May 23, 2017, it will be eligible to apply for a license by May-June this year.
The sharp downgrade in price target from Macquarie comes days after the brokerage house had cut its price aim for Paytm to Rs 700 per share from Rs 900 per share. After a ban slapped on it by the Reserve Bank of India for onboarding of new customers in its payments bank.