Paytm Faces Another Blow
Macquarie doesn’t see a near-term remedy for Paytm’s concerns because RBI discovered serious failures.
The Reserve Bank of India’s whip on Paytm’s lending business kept its shares at 20% down for the second day on February 2. After February 29, new deposits and credit transactions were prohibited. Brokerages became concerned after the RBI directive, lowering stock target prices.
For instance, Jefferies downgraded Paytm to ‘underperform’ from ‘buy’ and cut the target price by more than half to Rs 500 from Rs 1,050 per share.
“The key impact would be felt on Paytm’s lending business if lending partners limit business due to operational or governance issues,” he said.
Also, Macquarie dropped its target price to Rs 650 per share while remaining ‘neutral’ on the stock. The brokerage business doesn’t see a near-term solution for Paytm’s concerns because RBI detected serious failures.
“After the first ban in March 2022 for onboarding new customers, the RBI has now conducted a comprehensive IT audit and and continued to identiy non-compliance, which in its view indicates that the lapses are quite material,” the broker said.
Bernstein analysts also said the RBI’s directive was bad and added to the business’s regulatory burden. “Effectively, the RBI’s actions bring an end to the operations of Paytm Payments Bank,” said.
After the development, the firm suspended its lending platform activities for two weeks while negotiating relationships with banks.
“We’re talking to lenders about their worries. Explaining how this will affect the portfolio. Paytm COO Bhavesh Gupta stated they had queries and are processing our answers.
It estimated a worst-case effect of Rs 300-500 crore on its yearly EBITDA. Fund managers and analysts expect a 5-15% effect on EPS, raising concerns as the company seeks profitability. The company was expected to breakeven on EBITDA by FY25.
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