Research house Macquarie said that Paytm cannot make significant money by merely being a distributor hence questioning its ability to achieve scale with profitability.
The report authored by Macquarie Reseach analysts Suresh Ganapathy and Param Subramanian displayed dissatisfaction towards the company’s “complicated organisation structure, related-party transactions, churn in top management and a thinly staffed board with 75% of members being based out of India.”
Research house Macquarie underperform rating on One 97 Communications as it believes Paytm’s business model lacks focus and direction. It has kept a target price of Rs 1,200.
“Dabbling in multiple business lines inhibits PayTM from being a category leader in any business except wallets, which are becoming inconsequential with the meteoric rise in UPI payments. Competition and regulation will drive down unit economics and/or growth prospects in the medium term in our view,” the research house said in a report.
It further said that Paytm cannot make significant money by merely being a distributor hence questioning its ability to achieve scale with profitability. “A key game changer could be an ability to monetise UPI, which could completely swing the investment case,” it said.
The listing of Paytm operator One97 Communications that is set to take place on November 18. The Rs 18,300-crore public issue of One97 Communications, the largest ever in Indian capital market history, was subscribed 1.89 times during November 8-10 due to lower-than-expected response in the qualified institutional buyer and high net-worth individual (HNI) categories. The portion set aside for qualified institutional investors was subscribed 2.79 times and that of non-institutional investors saw 24 percent subscription, while the retail investors’ portion was booked 1.66 times.
The report authored by Macquarie Reseach analysts Suresh Ganapathy and Param Subramanian displayed dissatisfaction towards the company’s “complicated organisation structure, related–party transactions, churn in top management and a thinly staffed board with 75% of members being based out of India.”
“Macquarie’s MGRS (governance and risk scoring) system places PayTM
below median. Obtaining a small finance bank license could be difficult in our view given that Chinese controlled firms own more than a 30 percent stake in PayTM,” it said.
Furthermore, Paytm’s “unclear” path to profitability earned meant the research house termed it an “expensive valuation.”
“We are unwilling to give it a premium here as we are unsure about the path to profitability. Key risks include a change in regulations which allow monetisation of UPI and receipt of a banking license,” it said.
