Macquarie slashes Paytm’s target price to ₹700, Goldman Sachs upgrades it

• This is the third time Macquarie had slashed Paytm’s target price.
• The investment firm has also increased its loss estimates for Paytm.
• Meanwhile, Goldman Sachs raised their topline estimates by 7-10%.

Global investment bank Macquarie has once again slashed Paytm’s target price to ₹700, after the digital payments giant widened its losses in the last quarter of 2021. Meanwhile, its counterpart Goldman Sachs has upgraded Paytm to ‘buy’ with a target price of ₹1,460.

Macquarie had earlier set a target of ₹1,200 on Paytm parent One 97 Communications against the initial public offering (IPO) price of ₹2,150. The company later reduced the target to ₹900 last month due to what it called “limited potential to scale distribution business for merchant loans”.

The investment firm has also increased its loss estimates for Paytm by 39-101% for fiscal years through 2022 to 2026.

“Paytm had issued around 28 million ESOPs [employee stock option plan] just before its IPO. These ESOP grants are deep in-the-money (exercise price of ₹9 vs IPO price of ₹2,150). Hence, ESOP costs are elevated for Paytm, and this will be a recurring annual expense of around ₹1600 crore going forward. Interestingly, around 76% of the ESOPs granted before IPO were to the founder-CEO [chief executive officer], Vijay Shekhar Sharma. Elevated ESOP expenses were not factored into our estimates previously,” Macquarie reportedly added.

It is important to note that Paytm’s parent company One 97 Communications increased its net loss by nearly ₹250 crore in the December quarter of 2021 compared to the same quarter last year. Its revenue nearly doubled compared to last year.

Goldman Sachs has raised their topline estimates by 7-10% for the digital payments giants. The investment bank highlighted that Paytm operates across multiple target area markets (TAM), most of which are believed to grow at a compound annual growth rate (CAGR) over 20% over the next five years.

“We believe Paytm’s strong topline growth in 3QFY22 (11% ahead of their estimates) will help allay investor concerns around declining payments take rate in recent years. In addition, Paytm continues to gain market share across both UPI and non-UPI, and its lending business is seeing robust traction (over 201% YoY revenue growth in 3Q),” Goldman Sachs said.

Shares of Paytm were volatile on Monday as it was the first trading day after One 97 Communications posted its financial results for the December quarter. The stock fell as much as 5% in the opening trade before rising upto 3%.

The company’s shares were trading ₹956 at 12:15 p.m., on 7 February, 2022.

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