Paytm shares in freefall after India banking regulator’s crackdown
▶ Company lost 42.4% of its market value in three straight trading sessions after RBI’s non-compliance action
The share price of One97 Communications, the parent firm of Indian digital payments company Paytm, fell sharply on the first trading day of the week, following regulatory action against its associate.
The company’s stock fell by 10 per cent to 438.50 rupees ($5.28) on Monday, hitting the new lower circuit breaker, a price band, on the Bombay Stock Exchange. The shares fell 20 per cent each on Thursday and Friday.
The BSE changed the daily lower circuit breaker of Paytm shares to 10 per cent from 20 per cent earlier after the financial technology company’s shares hit a 20 per cent lower circuit limit for two straight sessions following the Reserve Bank of India’s action on January 31.
The country’s central bank last week asked Paytm Payments Bank to stop accepting fresh deposits in its accounts or digital wallets from March after the regulator found “persistent non-compliance and continued material supervisory concerns in the bank”.
Investors and market intermediaries fear that the regulatory action could impair Paytm’s business volumes and profitability. In three straight trading sessions, following the RBI action, the company lost 205 billion rupees, or 42.4 per cent, in market capitalisation.
India’s banking regulator has also barred the bank from conducting credit transactions and carrying out top-ups on any customer accounts, prepaid instruments, wallets, and road toll cards after February 29.
Following the RBI action last week, the company and its chief executive Vijay Shekhar Sharma have reportedly been investigated by the Enforcement Directorate, India’s federal investigating agency for financial crimes, for alleged money laundering. However, Paytm has rejected the claim. One97 Communications holds a 49 per cent stake in Paytm Payments Bank but classifies it as an associate of the company and not as a subsidiary. Mr Sharma has a 51 per cent stake.
As per the RBI directive, there is no restriction on the withdrawal of money from the existing balance even after February 29.
Paytm Payments Bank is staring at an uncertain future with the RBI’s clampdown.
Paytm’s management claims, that despite the restrictions, the company will continue to operate its wallet and payments business by establishing new banking relations. The company said work has already started to ensure the continuation of the existing business.
“I think the disruption will be there for a couple of weeks. And to that extent, we will have an ebitda [earnings before interest, taxes, depreciation and amortisation] impact on our lending business. I don’t want to shy from saying that,” Paytm president and chief operating officer Bhavesh Gupta said.
In an attempt to calm the nerves of its app users and investors, Mr Sharma said: “Your favourite app is working, will keep working beyond 29 February as usual … For every challenge, there is a solution, and we are sincerely committed to serving our customers.”
Despite the assurances by the management on resolving the crisis, investors, market intermediaries and customers seem far from convinced.
Stock broker firm Jefferies said there was no clarity on RBI’s actions after the company’s analysts call and added that the recent events would drag the company’s growth and elongate profitability timelines.
“RBI’s actions directly impact the wallet business and profitability of merchant payments business, which can impact ebitda by 20 per cent to 30 per cent. We see the impact being much larger due to reputational concerns around the group,” it said.
With uncertainty on its future, analysts said Paytm Payments Bank is likely to witness a decline in deposits and business following the RBI curbs.
Jefferies has downgraded the share to “underperform” and cut its target price to 500 rupees per share.
“We cut ebitda by 46 per cent in 2025-26, led by a 7 per cent to 10 per cent cut to payments revenue and a 17 per cent to 24 per cent cut in lending revenue and compression in payments margins,” it said.
Stock brokers Macquarie said the implications of the RBI ban are quite serious but maintained its “neutral” rating on the stock and a target price of 650 rupees.
“Given the severe restrictions imposed on Paytm Payments Bank, we believe it significantly hampers Paytm’s ability to retain customers in its ecosystem,” Macquarie’s managing director Suresh Ganapathy said.
“We think revenue and profitability implications in the medium to long term could be significant and remain a key item to monitor.”
Indian stock broking company Motilal Oswal said it is having a “watchful stance” on the resilience of Paytm’s business model. It suggested a target of 575 rupees on Paytm.
Analysts say the current crisis is also likely to hurt the market share of Paytm.
As per the latest available data from the National Payments Corporation of India, as of December 2023, PhonePe had a 46 per cent share in digital payment volumes, followed by Google Pay with 36 per cent and Paytm with 13 per cent.
Paytm’s $2.5 billion initial public offering on the BSE in November 2021 was touted as a bellwether that the South Asian country’s appeal to global capital was growing.
However, the company lost more than a quarter of its value on its trading debut.
The company has yet to become profitable and its market value has fallen to about $3.4 billion – down about 80 per cent from its listing.
Your favourite app is working, will keep working beyond February … For every challenge, there is a solution VIJAY SHEKHAR SHARMA Paytm chief executive