Paytm hits lower circuit, shares down 20% after RBI's restrictions

Paytm expects an impact on its annual Ebitda (earnings before interest, taxes, depreciation and amortisation) in the range of Rs 300 to Rs 500 crore

A day after the Reserve Bank of India (RBI) announced curbs on Paytm Payments Bank Limited’s (PPBL) services, shares of its parent One97 Communications (OCL) on Thursday hit the lower circuit. 

The RBI has barred Paytm from accepting deposits or top-up customer accounts, wallets, FASTags, and other instruments after February 29 citing “persistent non-compliance” and “material supervisory concerns”. 

Its stock ended Rs  609, after hitting 20 per cent lower trading limit within minutes of opening.

Several analysts downgraded the stock fearing adverse impact of the RBI order.

“Given the severe restrictions imposed on PPBL, we believe it significantly hampers Paytm’s ability to retain customers, and accordingly restricts it from selling payment 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,” said a note by Macquarie, which has a price target of Rs 650 on the stock.

“We, thus, remain watchful of Paytm’s business model and its ability to navigate through this highly uncertain regulatory and macro environment. We are awaiting clarity from the company on the business outlook, we downgrade our rating to ‘neutral’ with a revised target price of Rs 575,” said another note by Motilal Oswal. “PPBL is taking immediate steps to comply with RBI directions, including working with the regulator to address their concerns as quickly as possible,” the company informed the exchanges.

Paytm expects an impact on its annual earnings before interest, taxes, depreciation and amortisation (Ebitda) in the range between Rs 300 and Rs 500 crore. The company has clarified the regulator’s move will not affect its verticals. 

Paytm founder and CEO Vijay Shekhar Sharma, during the company’s (second quarter of financial year 2023-24) Q2 earnings call this year, had said that PPBL and One97 Communications were two different companies which operate not just at arm’s length but “at farms” length.

In March 2022, the regulator barred Paytm Payments Bank from taking in new customers. The company was asked at that time to appoint an external auditor to check its information technology systems.