Macquarie Research lowered the target price for One97 Communications Ltd. as it sees “tough times ahead” for the parent company of digital payment platform Paytm.

“In order to achieve scale and scope, fintechs need to go beyond distribution and lending, requiring licenses. With the RBI recently raising issues with Paytm’s payment bank and Chinese ownership is over 25%, the chances of Paytm getting a banking license are now significantly lower, hampering Paytm’s ability to make loans. The financial services firm — the first to issue a bearish rating for Paytm ahead of its debut on the stock exchanges — said in a March 16 report.

“Given this, and the competition from other fintechs in the payments space, we remain skeptical about Paytm’s ability to generate free cash flow in the longer term.”

The Reserve Bank of India’s regulations on digital payments and ‘buy now pay later’, and stricter KYC and compliance standards will all be unfavorable developments for fintech companies in general, potentially affecting the economy and/or growth of reduce the units, Macquarie said. “We see this as additional headwind for Paytm, which could cloud the road to profitability.”

Macquarie cut its target price for Paytm’s parent company by about 36% to Rs 450 apiece as it slashed its price-to-sale growth from 0.35x to 0.2x, effectively valuing Paytm at 4.5x December 2023E sales versus the previous 7x sales. It maintained the underperform rating for the stock.

This post Macquarie cuts Paytm’s target price by 36% as it sees more headwinds

was original published at “https://www.bloombergquint.com/business/macquarie-cuts-paytms-target-price-by-36-citing-tough-times-ahead”