Macquarie takes another U-turn on Paytm, downgrades stock after 90% rally

While attributing the downgrade to the sharp run-up in share prices in recent months, Macquarie analyst Suresh Ganapathy said China’s Ant Financial could be looking to pare down its 25% stake which could be an overhang.

He also sees risks emerging from Jio Financial Services’ (JFS) foray into financial services space. RIL chairman Mukesh Ambani is expected to make announcements related to JFS in the company AGM this year.

On the earnings front, the brokerage has not made any changes and expects Paytm to report accounting profitability by FY26.

Despite the downgrade, Paytm shares were unaffected on Tuesday as the stock rose more than 2% to the day’s high of Rs 858 on BSE.

Since its listing, Macquarie has been one of the biggest bears on Paytm but had taken a U-turn earlier this year. In November 2021, Paytm had given an underperform rating on the stock with a target price of Rs 1,200 which it subsequently reduced to Rs 450 in March 2022.

However, in February this year, the brokerage gave a double upgrade to the stock and raised its target price by 80% to Rs 800 as the fintech’s loss narrowed in Q3.After reporting the second quarter of EBITDA (before ESOP cost) profitability in Q4, Paytm founder and CEO Vijay Shekhar Sharma has now promised to make Paytm free cash flow positive in the near future.

Last week, global brokerage firm BofA Securities had raised the target price to Rs 1,020 from Rs 885, citing momentum in high-margin lending and Soundbox business.

The brokerage firm has increased its FY25/26E EPS to -3.86/5.29, leading to DCF value increase to Rs 1,024. “We also increase payments/financial services multiple to 3.5x/6x (from 3x/5x) to factor in re-rating of global peers and expect a narrowing gap for Paytm given its improving business momentum,” it said while reiterating buy rating on the back of favourable risk-reward.

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