Shares of One97 Communications, Paytm’s parent firm, faced some turbulence on the stock market on Monday after the company reported its second quarter financial results. The company reported a 64 per cent year-on-year rise in revenue, while net loss widened by 8 per cent to Rs 473 crore.

Though the company’s revenue from operations improved in the second quarter, analysts still remain concerned about the leading digital payment firm’s path to profitability.

Foreign brokerage Macquarie, which had criticized Paytm for its high valuation and the business model on listing day, maintained that the stock may continue to underperform and kept its target price unchanged at Rs 1,200 after Paytm declared its second quarter results.

Explained: Why Paytm shares fell sharply in early trade

The brokerage indicated that the stock was trading more than 22 times its FY23 price to sales and called it expensive. Macquarie had released a recent research note where it had criticised Paytm’s expensive valuation at Rs 2,080-2,150 per share and its ability to generate profits.

Macquarie, however, is not the only brokerage that has warned investors about Paytm. Brokerage JM Financial also assigned a target price of Rs 1,240 per share. Justifying its target price, the brokerage said Paytm faces stiff challenges in its customer acquisition engine and it could slowdown its revenue growth in the core payments business.

“In our view, Paytm will need to keep funding its MTU growth and thus the road to profitability largely relies on the growth trajectory of other businesses,” JM Financial said.

While Paytm’s offerings such as BNPL, loan and merchant credit offer bigger opportunities to expand business, JM Financial said in its note that building a successful lending business is an elaborate process and requires sharp focus and execution, citing the presence of strong competitors.

“We forecast GMV CAGR of 41.1 per cent, revenue CAGR of 36.1 per cent and GMV/MTU CAGR of 18.2 per cent over FY21-26E for Paytm. However, even with our robust growth expectations (which in turn are a function of its ability to fund MTU growth through cashbacks, discounts), and an EBITDA breakeven by FY27E, we find valuations rich and the path to profitability fraught with high execution risks in context. Our target price of Rs 1,240 is based on 55x FY30E EV/EBITDA discounted back to FY24,” it added.