Paytm’s stock down over 40% since listing; here’s why analysts expect it to sink deeper

• Paytm’s stock has crashed more than 40% to ₹1,170 since it got listed on November 18, 2021 from its IPO price of ₹2,080.
• Analysts at global brokerage firm Macquarie expect the stock to fall over 50% more to ₹900 due to regulatory challenges, slowing merchant loan business, rising attrition and thereby increasing employee cost and so on.
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Shares of One 97 Communications — the parent company of digital payments giant Paytm is in deep red as analysts feel the company is headed for more losses with the coming time.

The stock is down over 40% from its lower initial public offering (IPO) price of ₹2,080 per share.

Global brokerage from Macquarie expects Paytm’s stock to fall 50% more to ₹900 per share as it sees many struggles awaiting the payment company.

Following this, on Monday, shares of the company slipped nearly 6% and ended at ₹1,159.

What are the struggles?
Recently, Paytm’s foray into the insurance broking business was rejected by Insurance Regulatory and Development Authority of India (IRDAI), which pointed towards the challenges it is facing in clearing regulatory hurdles. This may come in its ways of getting a banking licence.

RBI’s proposed digital payments regulations could cap Paytm’s wallet charges. “Payments business still forms 70% of overall gross revenues for Paytm and hence any regulations capping charges could impact revenues significantly,” said the report by Macquarie.

Currently, one has to pay a charge of about 2-2.5% for executing digital transactions through credit card, debit card and wallets.

In relation to this, RBI is studying the charges levied on digital payments and may cut down these charges, which will have an adverse effect on payment service providers like Paytm.

Rising attrition thereby leading to higher employee cost is another cause of concern for Paytm, according to the Macquarie report.

Summing up some of the struggles faced by Paytm, brokerage firm Macquarie has cut down its expectation for the company. “We cut our earnings (increase our loss projections) by 16-27% for FY 22-25 earnings estimate owing to lower revenues and higher employee and software expenses,” said the report.

Adding to it, in the last one year, Paytm’s average ticket size for loans disbursed has been consistently coming down.

Here is a two-minute video explaining why Paytm is struggling to make money:

“Now, we need to see how the management responds to this, because earlier they (Paytm) completely retaliated against Macquarie report (when it had cut down Paytm’s earnings estimates in November), it said the brokerage firm does not understand its business model. So, right now what kind of institutional interest will attract Paytm is important,” Kranthi Bathini, director of equity strategy at WealthMills Securities, told Business Insider.

“How funds are going to position themselves is very important for Paytm now,” he added.

Business Insider has reached out to Paytm for its comments on the Macquarie report. The story will be updated if and when we receive a response.

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