Explained: Why Macquarie's downgrade spooked Paytm investors

Explained: Why Macquarie’s downgrade spooked Paytm investors

Shares of digital payments firm Paytm hit a record low of Rs 380.05 in the afternoon trading session after falling nearly 10 per cent.

At 1:20 pm, Paytm shares were down 9.41 per cent at Rs 382.45 apiece on the National Stock Exchange (NSE).

The sharp downturn came after brokerage firm Macquarie came out with a fresh report on the embattled digital payments firm. It has slashed Paytm’s target price to Rs 275 and downgraded the stock.

It is worth noting that Macquarie was the brokerage firm that came out with the first target on Paytm, when the scrip got listed back in 2019. Macquarie had then suggested a target of Rs 1,200 on the stock just ahead of Paytm’s listing.

But why has the brokerage firm’s fresh report and downgrade spooked Paytm investors? Let’s find out:

Risk of customer exodus

The brokerage highlighted that Paym is at risk of losing a substantial number of customers, including 330 million overall customers and 110 million monthly transacting users (MTUs), along with a merchant subscription network of 10.6 million. This poses a significant threat to its revenue generation and overall business model.

‘Arduous’ migration hurdle

The brokerage firm in its report said migrating to other third party banks from Paytm Payments Bank could be a challenging task for Paytm.

“Moving payment bank customers to another bank accounts or moving related merchant accounts to other bank accounts will require KYC (Know your customer) to be done again based on our channel checks with partners, indicating that migration within RBI’s February 29 deadline will be an arduous task,” the brokerage said.

Paytm’s partnership with lenders at risk

Macquarie also indicated that the recent regulatory action against Paytm Payments Bank has made some of Paytm’s lending partners nervous.

“Our channel checks with some lending partners reveal that they are re-looking at their relationship with Paytm which eventually could lead to a decline in lending business revenues in case partners scale down or terminate their relationship with Paytm,” the brokerage highlighted in its note.

It went on to say that AB Capital, one of Paytm’s lending partners, has already pared down their BNPL exposure to Paytm from a peak level of Rs 20 billion to Rs 6 billion. The brokerage expects this to go down even further.

Kranthi Bathini, an equity strategist at WealthMills Securities told news agency Reuters that Macquarie has been “consistently” negative about Paytm since listing.

“Whenever they release a negative report, it inevitably casts a shadow over the company, fostering a prevailing sense of negativity,” said Bathini added.

Several other brokerages have also downgraded the Paytm stock, factoring in the possible impact of RBI’s action against Paytm Payments Bank. RBI has ordered the payments bank to stop some key operations from March 1, including cash deposits, Wallet top ups and FASTag recharge.

The future of the payments bank remains uncertain, especially after the Reserve Bank of India clarified on Monday that it would not review its regulatory action. All eyes are now on the RBI’s FAQ, which will be released this week.