Paytm shares hit 20% lower circuit for 2nd day; Jefferies, Macquarie cut target price

Shares of Paytm parent, One97 Communications, continued free fall on Friday, hitting 20% lower circuit for the second straight session, after brokerages cut target price on the stock following the Reserve Bank of India's directive against its lending business, Paytm Payments Bank (PPBL).

Extending losses for the second day, Paytm shares dropped 20% to hit a 52-week low of ₹487.05 on the BSE. The market capitalisation declined to ₹30,931 crore, with 2.7% lakh shares changing hands over the counter in the first hour of trade so far. The shares of fintech major hit a 52-week high of ₹998.30 on October 20, 2023.

After imposing first ban in March 2022 for onboarding new customers, the RBI in its January 31 order directed PPBL, the lending arm of Paytm, to stop taking new customers with immediate effect, while it barred the company from taking further deposits or credit transactions or top-ups in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29.

Soon after the development, Jefferies downgraded the stock to 'Underperform' and cut the target price by more than half to ₹500 from ₹1,050 per share. Another foreign brokerage Macquarie lowered its target price to ₹650 per share, while retaining a 'neutral' stance on the stock, saying that there is no near-term solution to Paytm's problems.

Bernstein has said that the RBI’s notification action brings an end to the operations of Paytm Payment Bank. This negative development has added to an already heavy regulatory overhang on the business, it says.

As per the company, the RBI’s action is likely to have a worst case impact of ₹300-₹500 crore on its annual EBITDA going forward. However, it expects to continue on its trajectory to improve its profitability.

In an exchange filing on February 1, Paytm said that its associate, PPBL, is taking immediate steps to comply with RBI directions, including working with the regulator to address their concerns as quickly as possible.

The Vijay Shankar-led company said that the development will not impact user deposits in their savings accounts, wallets, FASTags, and NCMC accounts, where they can continue to use the existing balances,” it says in a BSE filing.

With regard to the direction on termination of the nodal account of OCL and PPSL by February 29, 2024, the company says that they will move the nodal to other banks during this period. It also clarified that other financial services such as loan distribution, insurance distribution, and equity broking, are not in any way related to PPSL and are expected to be unaffected by the RBI direction.

The release further states that Paytm will continue to work with various banks (not just Paytm Payments Bank), on various payment products. “We now will accelerate the plans and completely move to other bank partners. Going forward, it will be working only with other banks, and not with PPBL, the release notes.

For the third quarter ended December 31, 2023, Paytm reported a reduction in losses and a significant jump in revenue, driven by strong performance of the payment services vertical amid an increase in gross merchandises value (GMV) of non-UPI instruments like EMI and cards; increase in payment processing margins on non-UPI instruments; and online sales during festive season.

In Q3 FY24, revenue from the payment business grew by 45% YoY to ₹1,730 crore, while profitability improved with net payment margin expanding 63% YoY to ₹748 crore. As of December 2023, merchant subscriptions were 1.06 crore, while it deployed 14 lakh devices, earning ₹100 to ₹500 per month per device.

Overall, the Noida-headquartered fintech major reported a net loss of ₹222 crore in Q3 FY24, narrowing by ₹170 crore year-on-year from ₹392 crore loss in the year-ago period. The revenue grew 38% to ₹2,851 crore in the third quarter compared to ₹2,062 crore in the same period last fiscal.

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