1.
 February 8, 2023
Paytm: According to Macquarie, the management of Paytm has changed its strategy for generating
profit in a very noticeable way. The firm has increased both its objective and its FY23–26E revenue
expectations by 33–51%.
The Vijay Shekhar Sharma-led business was dubbed a cash guzzler by Macquarie on the day One97
Communications (Paytm) was listed, and the brokerage recently lowered the stock’s target price to as
low as Rs 450.
Now, Macquarie has double-upgraded the stock to ‘Outperform’ from ‘Underperform. The stock is
currently valued at Rs 800 per share by the overseas brokerage.
According to Macquarie, since Paytm shares were listed at Rs 2,150 in mid-November 2021, the stock
has fallen 70% versus a flat Nifty, and the firm’s assessment of the stock at that price was different
from its assessment of the stock at its current price of roughly Rs 600.
Financial company Sayings
Profit and free cash flow, according to Macquarie, were not even discussed by management at the time
of offering. However, it claimed that there had been a noticeable shift in the management’s strategy for
generating profit. The firm has increased both its objective and its FY23–26E revenue expectations by
33–51%.
Paytm has positively surprised on the distribution of financial services income by a significant margin
since our last target price decrease, and has also managed to control total expenditures and levies, the
company reported.
There are Still Risks
Many BNPL (buy now pay later) strategies have failed globally, including in India, according to
Macquarie. Paytm does not have any balance sheet risk associated with the loans it issued, but
Macquarie stated that it did have considerable commercial and reputational risk.
There are dangers relating to competition as well as regulatory difficulties, with Paytm apparently
facing regulatory ire for errors on its side, it said adding that a few months of poor performance might
lead to lenders pulling their credit lines, greatly limiting Paytm’s capacity to develop.
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Additionally, according to Macquarie, “a lot more has to be done” in terms of corporate governance,
including adding more independent board members and an independent non-executive chairperson.
What caused Macquarie to reconsider?
According to channel checks, Macquarie conducted with some of the biggest Paytm lenders and
partners, personal loans and post-paid services continue to perform rather well, with post-paid services
currently accounting g for 95% or more of total volume.
Over the last 12 months, there have been multiple repeat purchases/transactions, which guarantees the
quality of these loans.
According to Macquarie, the headroom is sufficient for Paytm to continue rapid growth for the
foreseeable future because post-paid loans and personal loans only account for 4% and 0.8% of MTU
(monthly transacting users), respectively.
Due to a significant rise in sales figures and a roll-forward to December 2024 from a December 2023-
based value, Macquarie has reduced its FY23-25E loss-per-share forecasts by 18–72% and upped its
target price to Rs 800 from Rs 450.
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