Global brokerage Macquarie has downgraded Paytm stock to ‘Neutral’ from ‘Outperform’
Paytm Stock Price: Global brokerage Macquarie has downgraded Paytm stock to ‘Neutral’ from ‘Outperform’. This comes just four months after it gave a double upgrade to One 97 Communications, the parent of payments service provider Paytm.
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Macquarie had double upgraded Paytm in February to outperform from underperform and raised its price target to Rs 800 from Rs 450 earlier. However, despite the downgrade to neutral, Macquarie has maintained its price target for Paytm at Rs 800.
While attributing the downgrade to the sharp run-up in share prices in recent months, Macquarie analyst Suresh Ganapathy said China’s Ant Financial could be looking to pare down its 25% stake which could be an overhang.
He also sees risks emerging from Jio Financial Services’ (JFS) foray into financial services space. RIL chairman Mukesh Ambani is expected to make announcements related to JFS in the company AGM this year.
A sharp run-up that the stock has seen so far in 2023 has driven Macquarie to downgrade the stock. Shares of Paytm have risen nearly 60 percent so far this year, compared to a 3 percent rise on the Nifty 50. Despite this surge, the shares still remain well below their IPO price of Rs 2,150.
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The brokerage has also highlighted business and reputation risks that lie ahead for Paytm, which goes down as another key reason behind the downgrade. Macquarie further expects the lending business volumes to be volatile over cycles.
Macquarie highlights two major overhangs and negative risks for the stock going forward. One of the key risks is Ant Financial looking to sell 25 percent stake in the company will be a likely overhang for the stock. Another risk would be any Jio Financial Service-related announcement in the Reliance Industries’ AGM could be another negative trigger.
In one of the first ratings assigned to Paytm, Macquarie assigned an underperform rating to the stock with a price target of Rs 1,200 and later downgraded it to Rs 900, Rs 700 and even Rs 450, before upgrading the stock in February.
Last week, global brokerage firm BofA Securities had raised the target price to Rs 1,020 from Rs 885, citing momentum in high-margin lending and Soundbox business.
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The brokerage firm has increased its FY25/26E EPS to -3.86/5.29, leading to DCF value increase to Rs 1,024. “We also increase payments/financial services multiple to 3.5x/6x (from 3x/5x) to factor in re-rating of global peers and expect a narrowing gap for Paytm given its improving business momentum,” it said while reiterating buy rating on the back of favourable risk-reward.
