Paytm dips 20% post RBI move; brokerages see more downside going ahead

Shares of One 97 Communications, parent of fintech giant Paytm, tanked 20 per cent to Rs 608.80 on the BSE in Thursday's trade after the Reserve Bank of India halted nearly all transactions of its digital payment unit Paytm Payments Bank (PPBL).

The RBI has restricted PPBL from taking fresh deposits and credit transactions across its services due to non-compliance of regulations and supervisory concerns.

Paytm's share erased its entire 20 per cent rally recorded in the month of January.

Till 09:28 am, a combined 675,000 equity shares changed hands and there were pending sell orders for 38.97 million shares on the NSE and BSE. 

Brokerages have downgraded the stock with ratings between ‘netural’ to ‘underpeform’.

“RBI's strongly worded restrictions on PPBL reflect concerns on persistent non-compliances. Direct impact on wallets and payments can be 20-30 per cent of Ebitda and reputational impact on lending partnerships can affect further by 20-25 per cent," estimates Jefferies. 

The brokerage has slashed FY25-26 Ebitda estimates by 45 per cent and downgraded its rating on Paytm from Buy to Underperform with the price target halved to Rs 500. 

Those at Morgan Stanley have increased their bear-case weight from 25 per cent to 45 per cent on Paytm, driving its price target down to Rs 690.

Morgan Stanley sees downside risk to its earnings estimates and will revisit following the conference call scheduled later today.

Paytm is India’s leading payments and financial services company and the pioneer of QR, soundbox and mobile payments.

The company expects the RBI action to have a worst case impact of Rs 300 to 500 crore on its annual earnings before interest, taxes, depreciation, and amortization (Ebitda).

However, it expects to continue on its trajectory to improve its profitability.

The company said it was informed that this does not impact user deposits in their savings accounts, Wallets, FASTags, and NCMC accounts, where they can continue to use the existing balances.

Paytm said it will now accelerate the plans and completely move to other bank partners.

Going forward, it will be working only with other banks, and not with Paytm Payments Bank. 

RBI has asked PBPL to stop new credit and deposit operations, top-ups, fund transfers, and other such banking operations by February 29. Customers will only be allowed to withdraw their balances from their accounts or other prepaid instruments.

Earlier too, RBI had banned PBPL from onboarding new customers, on account of material supervisory concerns observed until it was able to complete its comprehensive IT audit.

Following the audit, external auditors have revealed persistent noncompliance and continued material supervisory concerns that warranted further supervisory action.

"The bigger issue is Paytm has not been on the good books of the regulator and going forward, their lending partners also could possibly re-look at the relationships in our view, " said analysts at Macquarie.

Given the severe restrictions imposed on PBPL, analysts believe it significantly hampers Paytm's ability to retain customers in its ecosystem, and accordingly restricts it from selling payment products and loan products.

Macquarie further said it does not see any near term solution to these problems and this effectively means that RBI is indirectly revoking the PPI (pre-paid instrument) licence of Paytm. 

The RBI has announced punitive measures, which will have a significant impact on Paytm’s business performance, according to Motilal Oswal Financial Services.

“We are 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”, the brokerage said, downgrading the stock rating to Neutral with a revised target price of Rs 575.