Paytm shares plummet by additional 20%, triggering the lower circuit; no imminent resolution in sight

2 Feb 2024 , 07:08 PM

Paytm shares fell 20% for the second day in a row on February 2 after the Reserve Bank of India tightened its lending restrictions. This included restrictions on receiving new deposits and conducting credit transactions after February 29. Brokerages became concerned following the RBI regulation, resulting in a drop in target prices for the stock.

Jefferies, for example, downgraded Paytm to ‘underperform’ from ‘buy’, lowering the target price by more than half to ₹500 per share from ₹1,050.

According to Jefferies, the biggest impact on Paytm’s lending business would be if lending partners limited activity due to operational or governance difficulties.

Macquarie, too, reduced its target price to Rs 650 per share while keeping a ‘neutral’ rating on the company. The brokerage company does not see any near-term solution to Paytm’s concerns since it feels the lapses discovered by the RBI are serious.

Following the first ban on onboarding new customers in March 2022, the RBI has now completed a full IT assessment and continues to identify non-compliance, indicating that the failures are extremely serious,’ the brokerage business stated.

Soon after the news, the firm said that it has suspended its lending platform activities for a few weeks while it talked with banks about partnering.

The business forecasts a worst-case effect of ₹300-500 Crore on its annual EBITDA. Furthermore, fund managers and analysts expect a 5-15% effect on earnings per share (EPS), raising worries as the firm pushes for profitability. There were estimates that the corporation would break even on EBITDA by FY25.

Bhavesh Gupta, Paytm’s Chief Operating Officer, stated, ‘We are addressing the concerns of each lender, providing clarification on the potential impact on the portfolio. They have raised queries, and we are in the process of addressing and elaborating on our responses.’

For feedback and suggestions, write to us at [e-mail]