Paytm bounces back, gains 7% after a 37% fall in two trading sessions

Shares of One97 Communications, the parent company of digital payments major Paytm, were trading firm up 7 per cent at Rs 1,453 on the BSE in Tuesday’s intra-day trade after a sharp 37 per cent fall in past two trading days post debut. The stock of the India's leading digital ecosystem for consumers and merchants had made market debut on Thursday, November 18, 2021.

On Monday, the stock hit an intra-day low of Rs 1,271, and had fallen 41 per cent against its issue price of Rs 2,150 as investors remain cautious on the company's lofty valuation and remain sceptical about its business model.

At 10:06 am; Paytm was trading 5 per cent higher at Rs 1,429 on the BSE, as compared to 0.35 per cent decline in the S&P BSE Sensex. A combined 4.14 million equity shares had changed hands on the NSE and BSE.

On Sunday, Paytm announced that its gross merchandise value (GMV) for the month of October touched Rs 832 billion (around $11.2 billion), a growth of 131 per cent on a year-on-year (y-o-y) basis. The company, in a disclosure to the exchanges, said that the growth was driven by the festive season and an increase in number of merchants and consumers, adoption of new products, transactions for both online and in-store merchants, and in deployed devices.

"In the scenario where the benchmark indices are in a profit booking zone, we expect Paytm share prices to remain subdued and weak for some more time. They may touch Rs 1,150 before fresh buying emerges. We advise investors to be cautious and enter only when sentiments turn around," said Dr. Ravi Singh, Head of Research & Vice President, ShareIndia.

Meanwhile, the board of Paytm is scheduled to meet on Saturday, November 27, 2021 to consider financial results of the company for the quarter and half year ended on September 30, 2021 (Q2FY22).

Paytm has a market share of 65-70 per cent in the digital wallets business and about 40 per cent in the consumer to merchant segment by transaction volume of mobile payment instruments.

However, analysts at Macquarie believe dabbling in multiple business lines inhibits Paytm from being a category leader in any business except wallets, which are becoming inconsequential with the meteoric rise in UPI payments. “Competition and regulation will drive down unit economics and/or growth prospects in the medium term in our view,” the brokerage firm said in a November 22 report. The brokerage has a 12-month price target of Rs 1,200 on the stock.

The brokerage firm further said that the Reserve Bank of India (RBI) most likely will introduce regulations in the Fintech space, particularly in the BNPL space in our view. “We are also not enthused with the company’s complicated organisation structure, related-party transactions, churn in top management and a thinly staffed board with 75 per cent of members being based out of India,” analyst said.

Macquarie’s MGRS (governance and risk scoring) system places Paytm below median. “Obtaining a small finance bank license could be difficult in our view given that Chinese controlled firms own more than a 30 per cent stake in Paytm,” it added.