Paytm's Over Valuation: Shares May Break 44%: Target Price Rs

MUMBAI: The listing of shares of Paytm-One2 Communications Ltd has made many investors cry today. The stock has plunged 9 per cent from its current issue price of Rs 2,150 today to a low of Rs 150 in the lower seller's circuit, while foreign broking giant Macquarie has raised the company's share price from Rs 4,150 to Rs 1,350. Accordingly, the target price of the stock has been set at Rs. Broking House believes that Paytm's business model lacks focus and direction and is a company seeking huge sums of money.

Macquarie said it was a big challenge for the company to make a profit and that regulation as well as competition were factors of concern. The valuation of Paytm is estimated to be three times more expensive than the FY208 price and the long-term profitability is uncertain.

The price-to-sales growth ratio has also been 0.2-0.5 times higher for most fintech companies-entrepreneurs and is in the upper band in this band. So Macquarie doesn't want to pay a premium to the company as the path to profitability is uncertain. There are also major risk regulations, including monetization of UPIs and obtaining banking licenses.

In addition, the broking house says that most of the work that Paytm is doing is being done by other big ecosystem entrepreneurs like Amazon, Flipkart, Google, etc. BNPL has a big competition in the field (buy now and pay now) and in the distribution of various financial products.

In the long run, the distribution business will see a decline in returns due to competition and regulation. So the question is whether the company will be able to achieve this level of profitability. The brokerage house sets a price target of Rs 1,200 on an annualized sale basis using the 0.4 times PSG multiple of December 206, indicating a 5 per cent decline in issue price.