Following the issuance of a robust statement by RBI, restrictions were imposed on Paytm Payments Bank, triggering downgrades by brokerages. The stock witnessed a decline, with Jefferies lowering its target price to Rs 500 per share, emphasizing the reputational risks. Serious implications of the RBI ban on Paytm’s capacity to retain customers and promote payment and loan products were underscored by Macquarie.
Jefferies Downgrades Paytm, Slashes Target Price
Jefferies has reduced EBITDA (ex-ESOP) by 46%/44% in FY25/26E, attributing it to a 7-10% decrease in payments revenues and a 17-24% cut in lending revenues, along with compression in payments margins. A sensitivity analysis conducted by Jefferies indicates that a 10% change in disbursements has a low impact on revenues (2%) but significantly affects EBITDA (15%). Adjustments in DCF valuations have been made to reflect lower growth and margins. The implied valuation multiple has been reduced by 30% to 15x FY26E EBITDA. Paytm has been downgraded to underperform, and the target price has been lowered to Rs 500 from Rs 1,050.
Motilal Oswal Downgrades Paytm to Neutral, Cuts Target Price to Rs 575 Amid Growing Concerns
Motilal Oswal has downgraded the Paytm rating to neutral and reduced the target price to Rs 575. Expressing serious concerns over the latest measures and their impact on Paytm’s business outlook, Motilal emphasized the dent in overall investor confidence. The brokerage remains watchful of Paytm’s business model and its ability to navigate the highly uncertain regulatory and macro environment.
Macquarie has highlighted the severe implications of the RBI ban on Paytm. Suresh Ganapathy from Macquarie stated, “Given the severe restrictions imposed on PBPL, we believe it significantly hampers Paytm’s ability to retain customers in its ecosystem, and accordingly restricts it from selling payment products and loan products. We think revenue and profitability implications in the medium to long term could be significant and remain a key item to monitor.”
RBI Imposes Restrictions on Paytm Payments Bank
Paytm Payments Bank has been prohibited by the RBI from accepting deposits or credits to customer accounts, allowing only withdrawals. The termination of the nodal account, crucial for facilitating merchant payments, has also been implemented. However, Paytm has the option to collaborate with other banks to sustain its services.
In response to the RBI statement, Paytm stated that this restriction does not affect user deposits in their savings accounts, wallets, FASTags, and NCMC accounts, allowing customers to continue using existing balances. Paytm also mentioned that the merchant payments business can continue through partnerships with other banks, estimating a potential impact of Rs 300-500 crore on its annual EBITDA in the worst-case scenario.
Vijay Shekhar Sharma Confirms No Margin Loans or Pledged Shares Amid RBI’s Actions
Jefferies has stated that the RBI’s actions directly affect the wallet business and the profitability of the merchant payments business, potentially impacting EBITDA by 20-30%. The brokerage perceives a more substantial impact due to reputational concerns surrounding the group. Jefferies points out that the lending business, constituting 20% of revenues, could face significant challenges if lending partners reduce or limit their exposure. Consequently, Jefferies has decided to reduce FY25-26 EBITDA estimates by 45%, foreseeing a delay in profitability.
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