Macquarie Reverses Stance On Paytm After Initial Criticism

Investment research firm Macquarie has been one of Paytm’s harshest critics, right from the company’s public listing. And now as Paytm continues to impress analysts with its resilient performance, Macquarie’s analyst Suresh Ganpathy has made a significant shift from its earlier stance, contradicting his earlier research, and raised Paytm’s target price to R 730 from Rs 325.

In a report after the company’s Q3 earnings results, Macquarie released a report ‘Strong beat on all fronts’, after Paytm beat all estimates with an impressive Q3. The company has reported an operating revenue of Rs 1,828 Cr for Q3 FY25, marking a 10 per cent sequential growth. This growth was driven by increase in GMV, healthy growth in subscription revenues and increase in revenues from distribution of financial services. Profit After Tax (PAT) improved significantly by Rs 208 Cr QoQ to Rs (208) Cr, reflecting consistent progress toward profitability. EBITDA before ESOP costs improved significantly by Rs 145 Cr quarter-on-quarter (QoQ), narrowing to Rs (41) Cr.

Macquarie shot to fame for having correctly projected Paytm’s initial price predictions, appearing on national television, and participating in news articles. However, a deeper look into his analysis over time shows that his revenue and loss estimates have been grossly inaccurate since IPO. So could it be that he got lucky in 2021, as Paytm’s price correction seems more linked to global fintech selloff rather than dismal company performance as predicted by him. Share prices of global fintechs like Paypal, Block and Kakao Pay dropped by 60-80 per cent from their peak in 2021 by mid 2022. At the time of initiation, he has stated that as per their research, the payment revenue CAGR would not be higher than 4 per cent between FY21-26, with FY24 payment revenue forecasted at Rs 22bn. As compared to that, the company has significantly over achieved and delivered a CAGR of 33 per cent during FY21-24; FY24 actual payment revenue reported was Rs 62bn .

In February last year, Macquarie released a scathing report titled ‘Paytm fighting for survival’, questioning if it's the end of the road for Paytm. In fact, the report in February was published post RBI monetary policy where it was clarified that they will be coming out with FAQ in a week’s time, but Macquarie didn’t wait for FAQs to be released. In this report, he had painted a doomsday picture with FY25 revenue expectations of merely Rs 42.2bn which he has now increased dramatically to INR66.8bn. As Q3FY25 results announced on 20th Jan’25 show, the company reported 9M revenue of Rs 49.9bn, which is 18 per cent higher than his initial assumption for the full FY25 revenue.

The FY25 loss estimates by Macquarie i.e. Rs 34.2bn are significantly higher than the 9M FY25 PAT at INR 1.2bn. The sharp reduction in losses by the company has been achieved through merchant retention, continued product innovation, strong business growth and reduction of both direct and indirect costs by leveraging AI capabilities. The company took some strategic decisions to focus on the core business of payments and FS, and accordingly the company sold the entertainment business to Zomato for Rs 2,048 Cr and sold a stake in PayPay Japan for Rs 2,372 Cr.

But what's interesting is after the hullabaloo around Paytm’s price since its listing, Macquarie has upped the company’s target price now, albeit silently, snuck away in an overall financial sector report published on Jan 10.

In the January report, Ganpathy’s words show that his earlier research was off the mark. Macquarie said, “We decrease our losses by 57 per cent/24 per cent in FY25F/FY26F primarily driven by increase in payment revenues and some increase in distribution revenues. Impact of customer exodus post the regulatory embargo has been lower than expected. There is some sign of profitability in FY27F.”

In its most recent report, the firm admitted that the company continues to beat estimates, “Losses for Paytm declined to Rs2.1bn in 3Q25 from Rs4.1bn (adjusted for one-off gain) in 2Q. This was a significant beat to our estimate due to higher revenue (up 10 per cent q-q) from payment (5 per cent beat) and distribution business (39 per cent beat) given the consistent improvement in MTUs (72mn in Dec-24 vs 68mn in Sep-24), merchant subscription (up 4 per cent q-q) and distribution take rates (9 per cent vs 7.1 per cent in 2Q).”

Paytm has been able to achieve consistent revenue growth in this year. After the Reserve Bank of India (RBI) imposed restrictions on Paytm Payments Bank, Paytm shifted its UPI services to a network of multiple banking partners in a quick period of time.This strategic move has diversified its operations, mitigated risks, and unlocked new opportunities for monetization. Macquarie expected this to be a tall task as mentioned in their February 2024 report.

Ganpathy believed that in order to normalise its business, a 50 per cent cash burn (~4,200 Cr) would happen, based on the company’s cash balance of 8,439 Cr in Dec '23. Macquarie’s bull case scenario was 25 per cent cash burn (~2,100 Cr). But in reality, Paytm has been able to increase its cash balance. At the end of Q3FY25, Paytm’s cash balance stood at an impressive Rs 12,850 Cr as against cash balance of Rs 8,439 Cr in Dec '23.

Macquarie, based on their research, estimated that Paytm “faces a serious risk of customer exodus”. However, brand Paytm continues to stay strong. The company has received NPCI approval to onboard new UPI users in October 2024, and on the merchant side, its merchant subscriber base for devices had already reached 1.17 Cr as of Dec '24, up from 1.06 Cr in Dec last year.

Over the last quarters, Ganpathy has been correcting his own stance on Paytm. In the report from October, he wrote “Paytm reported 2Q FY25 PAT of Rs9.3bn, including a one-off gain of Rs13.5bn on the sale of its movie-ticketing business. However, the EBITDA loss of Rs40bn was lower than our 71bn loss estimate, driven by higher distribution revenue (up 34 per cent QoQ) and lower employee costs (down 13% QoQ vs our expectation for a 10 per cent QoQ increase).”

With repeated instances of his research having been proven wrong, Ganpathy has finally had to bow down to reality, increasing Paytm’s target price. The latest report says, “Our TP increase is large as we 1) roll forward to FY27F 2) increase distribution business multiple to 30x from 20x earlier 3) factor in the monetisation of entertainment and PayPay stake sale 4) factor in the revised cash balance (as on 1H25) without any cash burn.” Despite this, the current report continues to see significant deviation from the Visible Alpha EPS estimates for FY25, the largest amongst all other banks, NBFCs and Fintechs covered by it.

After its Q3 results, global research firm Morgan Stanley said, “3QF25 showed multiple positives; a) strong growth in revenues, b) material cost control, c) NPCI approval to onboard new customers.”

Similar sentiment was echoed by several brokerage firms including JM Financial, Bernstein, Citi, Motilal Oswal, Dolat Capital, ICICI Securities, Mirae Asset Capital and Emkay, who have reiterated their positive outlook on Paytm following its strong December quarter earnings (Q3FY25) citing strong cost control, regulatory developments, and potential for long-term growth.