Paytm Touches Upper Circuit In Fourth Straight Session; Shares Near INR 400 Mark

Continuing its gains for the fourth consecutive trading session, shares of Paytm opened 5% higher on Wednesday, once again touching the upper circuit at INR 395.25 on the BSE.

After a sharp fall of over 50% since January 31 due to the RBI’s crackdown on Paytm Payments Bank, the shares of Paytm started witnessing some respite from the end of last week. 

RBI’s extension of the deadline on the payments bank’s business restrictions to March 15 from February 29 earlier as well as the company’s announcement of shifting its nodal account to Axis Bank gave some optimism to the company shareholders.

Following the positive developments, Paytm shares have gained 21.5% since Friday (February 16).

We must note that on January 31, RBI issued a notification barring Paytm Payments Bank from any deposits or credit transactions, or top-ups in any of its customer accounts. It also stopped the company from providing any banking services including UPI facility and fund transfers after February 29.

What followed next were two weeks of intense news developments with Paytm officials meeting RBI and the finance ministry as well as some of the top Indian entrepreneurs showing concerns regarding the repel effect of such a sudden move on the country’s overall fintech ecosystem.

Several brokerages also cut their rating, price targets (PTs), and other estimates on Paytm. However, after RBI released its frequently asked questions (FAQs) on the issue and extended the deadline, the move was largely viewed as positive by the brokerages.

In a research note on Paytm published earlier this week, Bernstein said that the regulatory action would undoubtedly have a lasting impact on investors’ assessment of the business model risk and of the management’s ability to handle regulatory risk.

“However, we believe the regulatory actions are restricted to the PPBL (Paytm Payments Bank Limited) entity, and we expect the company to successfully execute the operational changes required to remove the dependency on PPBL with limited long-term impact to their overall business,” the brokerage said.

In fact, Bernstein is one of the only three brokerages with a ‘buy’ or above rating on the stock. Of the 14 brokerages covering Paytm, a majority six of them currently rate the shares as ‘hold’, while four of them have a ‘sell’ or below rating.

Reiterating its ‘outperform’ rating and a PT of INR 600, Bernstein said that Paytm has a large merchant base of around 40 Mn, with almost 0.6 Mn live merchant loans, of which about 10-15% (40-60K) have a loan and repayment account set up with payments bank. 

“The limited impact on app traffic for both consumers and merchants corroborates our view that the disruption to GMV/ merchant loan growth might indeed be a short-term phenomenon,” the brokerage said.

However, with the Paytm Payments Bank’s products such as wallets and FASTags set to drop, it estimates about a 5% decline in payment GMV and the worst-case impact of 4 bps on the payments processing margin, if the economics for Paytm don’t change significantly from switching to a non-PPBL partner.

On the other hand, Jefferies suspended its rating and PT on Paytm until the news flow settled down. The brokerage sees a 28% YoY decline in its FY25 revenue, which would push Paytm into cash burns, factoring in both the direct and indirect impact.

Meanwhile, reports also emerged this week suggesting that the Enforcement Directorate (ED), which had started an investigation into Paytm Payments Bank for possible foreign exchange violations following RBI’s clampdown, has not yet found any such breaches in the company.

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