Paytm hits 2nd straight 20% lower circuit post RBI curbs; downgrades weigh

The RBI on Wednesday restricted Paytm Payment Bank from taking fresh deposits and credit transactions across its services due to non-compliance of regulations and supervisory concerns.

Shares of One 97 Communications, parent of fintech giant Paytm, were locked in the 20 per cent lower circuit for the second straight day at Rs 487.05 on the BSE in Friday's trade after the Reserve Bank of India (RBI) 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 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, however, has clarified the regulator’s move will not affect its verticals.

The company's parent, One 97 Communications, in an exchange filing said that it is already working with other banks and will accelerate its plans and completely move to third-party partners.

In the past two trading days, the stock has plunged 35 per cent. It now quotes close to its record low of Rs 438.35 touched on November 23, 2022.

Till 10:19 am, a combined 2.78 million equity shares changed hands and there were pending sell orders for 19.91 million shares on the NSE and BSE.

As on December 2023, foreign direct investment (45.08 per cent) and foreign portfolio investors (18.64 per cent) collectively held 63.72 per cent stake in One 97 Communications, shareholding pattern data shows. Paytm founder Vijay Shekhar Sharma held 9.11 per cent stake, data shows.

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

Meanwhile, the 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.

"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.

RBI takes around 15 months time to revoke its ban on digital business activities of the largest private sector bank. However, in this case since the first ban (in March 2022) for onboarding new customers (~22 months have lapsed), RBI has conducted a comprehensive IT audit and continued to identify non-compliance, which in our view indicates that these lapses are quite material, the brokerage firm.

“Accordingly, we do not see any near term solution to these problems and this effectively means, in our view, that RBI is indirectly revoking the PPI (pre-paid instrument) licence of Paytm,” the brokerage firm said with a ‘neutral’ rating on the stock.

The RBI 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.