Paytm shares experience a 20% decline, losing $2 billion in just two days

Paytm shares plummet, $2 billion

Paytm stated that its marketing and financial services remain unaffected by the directions towards its associate company PPBL, but operational adjustments may be necessary.

Shares of Paytm’s parent company, One 97 Communications, plunged an additional 20% on Friday, hitting the lower circuit at Rs 487 on BSE. This decline comes after a 20% slide the previous day, triggered by the RBI’s directive to Paytm Payments Bank, barring it from offering various banking services due to non-compliances.

The fintech stock, experiencing a volatile journey since its November 2021 listing, opened in the lower circuit amid block deals. Over the past two days, the stock has witnessed a loss of $2 billion in market value.

Last year, Berkshire Hathaway, led by Warren Buffett, sold its complete stake in Paytm at Rs 877.2 per share, incurring a loss on the investment held for five years.

Post the RBI’s intervention, various brokerages have downgraded Paytm. JPMorgan, a global brokerage, assigned an underweight rating, revising the target price from 900 to Rs 600. According to JPMorgan, Paytm’s shift to other banks might dilute its economics and network effects. While the RBI’s directive may not signal the end for Paytm, it significantly impacts its short-term growth.

Jefferies has reduced the target price to Rs 500, and Motilal Oswal also downgraded its rating, setting a target price of Rs 575.

The major impact on Paytm’s business is expected to stem from concerns related to governance and compliance, thus emphasizing the importance of a resolution through stricter adherence to regulations and the withdrawal of RBI measures, according to Jefferies.

Jefferies further stated, “We have reduced EBITDA (excluding ESOP) by 46%/44% in FY25/26E, primarily due to a 7-10% reduction in payment revenues and a 17-24% reduction in lending revenues, along with a contraction in payment margins. Our sensitivity analysis indicates that a 10% variation in disbursements has a minimal effect on revenues (2%) but significantly impacts EBITDA (15%).”

Amid Paytm’s recent efforts to downsize its BNPL (Buy Now, Pay Later) operations and address the impact through an emphasis on higher-ticket personal and merchant loans, the latest regulatory measures have sparked significant concerns about its business prospects and have adversely affected overall investor confidence , as noted by Motilal Oswal Securities . Paytm anticipates that the RBI’s actions could lead to an annual EBITDA impact ranging from Rs 300 to 500 crores.

The severe restrictions on Paytm Payments Bank (PBPL) are viewed as potentially hindering Paytm’s ability to retain customers within its ecosystem and limit its offerings of payment and loan products. Macquarie’s Suresh Ganapathy emphasized the substantial revenue and profitability implications in the medium to long term as crucial aspects to monitor.

Attempting to alleviate user concerns, Paytm founder Vijay Shekhar Sharma reassured users on the social media platform , stating, “To every Paytmer, Your favorite app is working, will keep working beyond 29 February as usual.”

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