Macquarie, a leading brokerage firm, has downgraded the rating of Indian fintech giant Paytm from ‘outperform’ to ‘neutral’ due to concerns over competitive and regulatory risks. Despite Paytm’s impressive surge of 60% year-to-date in 2023, Macquarie believes that the stock’s outperformance period is coming to an end. The brokerage specifically points to the potential volatility of Paytm’s lending business volume in the long run.
While Paytm has experienced significant growth in its lending business and achieved positive financial results, Macquarie highlights the potential business and reputation risks associated with it. The brokerage suggests that a few months of poor performance could lead to lenders withdrawing their credit lines, significantly affecting Paytm’s growth prospects.
Macquarie also emphasizes the competition risk posed by Jio Financial Services, a major player in the Indian financial services sector. Any new announcements related to Jio Financial Services during the upcoming AGM of Reliance could negatively impact Paytm’s position in the market.
Maintaining its price target of INR 800 on Paytm, Macquarie predicts a downside of over 6% to the stock’s last closing price. The brokerage also expresses concerns about Ant Financial’s decision to sell its stake in Paytm, as reports suggest that both Ant Financial and SoftBank are looking to divest their holdings in the company.
Despite these bearish sentiments, the majority of brokerages remain bullish on Paytm’s growth prospects. Out of the 12 analysts covering the stock, 10 have a ‘buy’ or higher rating on Paytm. BofA Securities highlights Paytm’s ability to monetize its payments vertical through Soundbox, while Morgan Stanley expects Paytm to continue demonstrating strong growth and profitability improvement.
Goldman Sachs, following Paytm’s positive Q4 FY23 results, even predicts that Paytm will become the “most profitable company” within its coverage of India’s internet companies from FY25.
Overall, while Macquarie’s downgrade reflects concerns about competitive and regulatory risks, many other analysts remain optimistic about Paytm’s future potential in the Indian fintech market.
