Emkay Global Initiates ‘Reduce’ rating on Paytm, expects 13% downside

Emkay Global initiated its coverage on One 97 Communications, the parent company of Paytm, with a “Reduce” rating and a target price of 300 rupees per share, expecting a potential downside of approximately  13% from Wednesday’s closing price. 

Key Takeaways of One 97 Communication:

• Emkay Global initiates ‘Reduce’ rating on One 97 Communications
• Emkay Global initiated coverage on One 97 Communications with a ‘Reduce’ rating and a target price of Rs 300/share.
• Emkay expects a downside of nearly 13% from Wednesday’s closing price.
• The brokerage firm believes Paytm’s path to profitability will be arduous, mainly due to higher operational burn in payments.
• The brokerage firm believes RBI’s recent suspension on Paytm will impact its customer engagement too resulting in higher cash burn for retaining and engaging customers on the app.
• Emkay Global expects loan disbursement will dip in FY25E, and gradually improve thereafter, projecting a 10% CAGR over FY24-28E.

Anand Dama, Senior Research Analyst at Emkay Global Financial Services said, “We believe Paytm’s path to profitability will be arduous, mainly due to higher operational burn in Payments, given the absence of the high-MDR Wallet and rising share of low MDR UPI business; its jeopardized monetization strategy, with a sharp slowdown in Financial Services revenue amid rising asset quality and partner attrition/business scale-down risks".

Dama also expects loan disbursement to dip in FY25E and gradually improve thereafter, reporting a 10% CAGR over FY24-28E, subject to any further disruption.

The brokerage firm believes the Reserve Bank of India's suspension on Paytm Payments Bank’s high MDR wallet business will not only impact Paytm’s Wallet Gross Merchandise Value and hurt Payments margin, but also impact customer engagement, as it is a hook product for many users. 

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