'PaytmKaro' assurance fails to arrest 20% stk crash

Synopsis

Shares of fintech major One 97 Communications, which runs Paytm, crashed 20% on BSE following RBI’s ban on Paytm Payments Bank. The queue of sellers grew longer as the stock opened in the lower circuit. Last year, Berkshire Hathway sold its stake in Paytm. Brokerages like Jefferies and Motilal Oswal have downgraded Paytm shares.

Paytm shares crash another 20% amid long queues of sellersReuters

Shares of fintech major One 97 Communications, which runs Paytm, crashed another 20% on Friday to hit the lower circuit limit at Rs 487 on BSE following yesterday’s 20% slide after RBI barred Paytm Payments Bank from offering all kinds of banking services for non-compliances.

The queue of sellers in the fintech stock, which has had a roller coaster ride on Dalal Street since its listing in November 2021, grew longer today as the stock opened in the 20% lower circuit amid block deals. Since yesterday, the stock has lost $2 billion of its market value.

Last year, Warren Buffett’s Berkshire Hathaway had sold its entire stake in Paytm at Rs 877.2 apiece to book a loss on the investment after 5 years.

Various brokerages have downgraded Paytm after RBI’s action. Global brokerage JPMorgan has given an underweight rating with a target price of Rs 600 from 900 earlier.

Paytm has to migrate its business to other banks which can dilute its economics and network effects, it said, adding that RBI diktat may not be the end of the road for Paytm but it materially impacts near-term growth.

Jefferies has has reduced its target price to Rs 500 while Motilal Oswal has also downgraded it to reduce the target price to Rs 575.

Also Read | Paytm starts getting downgrades after RBI ban

Paytm’s business impact will largely come from reputational concerns arising from governance/compliance and hence, the path to resolution will be from stronger compliance with regulations and revoking of RBI measures, Jefferies said.

“We cut EBITDA (ex-ESOP) by 46%/ 44% in FY25/26E led by a 7-10% cut to payments revenues and 17-24% cut in lending revenues and compression in payments margins. Our sensitivity analysis shows that the impact of a 10% change in disbursements is low on revenues (2%), but high on EBITDA (15%),” the brokerage said.

Also Read | Sanjiv Bhasin says RBI directive on Paytm a big blow

Paytm had recently announced its plan to downsize its BNPL operations and was working to mitigate the impact by scaling up higher-ticket personal and merchant loans. “Against this backdrop, the latest measures raise serious concerns over its business outlook and dent overall investor confidence,” Motilal said.

Paytm expects RBI action to have a worst case impact of Rs 300 to 500 crores on its annual EBITDA going forward.

“Given the severe restrictions imposed on PBPL, we believe it significantly hampers Paytm’s ability to retain customers in its ecosystem, and accordingly restricts it from selling payment products and loan products. We think revenue and profitability implications in the medium to long term could be significant and remain a key item to monitor,” Macquarie’s Suresh Ganapathy said.

Meanwhile, in an attempt to assauge user concerns, Paytm founder Vijay Shekhar Sharma took to social media platform X today to assure the app’s continued operation beyond February 29.

“To every Paytmer, Your favourite app is working, will keep working beyond 29 February as usual,” Sharma said.

— vijayshekhar (@vijayshekhar)

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Harry Byrne

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