Paytm Stock Falls Another 20% to Hit Lower Circuit on Day 2

India's digital payment giant, Paytm, witnessed a 20% drop in its shares for the second consecutive day on 2 February. This downturn comes in the wake of the Reserve Bank of India cracking down on Paytm's lending operations, imposing restrictions on new deposits and credit transactions after 29-Feb-24.

Brokerages Reaction

In response to the RBI directive brokerages like Jefferies and Macquarie have downgraded Paytm's stock and revised target prices. Jefferies downgraded Paytm to 'underperform' from 'buy,' slashing the target price by more than half. Macquarie, while maintaining a 'neutral' stance, reduced its target price ₹500 from ₹1,050. Experts are worried about how Paytm's lending business could be affected. They highlight potential problems if the partners who lend money with Paytm decide to reduce their involvement due to issues with how things are run or managed.

In response to the regulatory action, Paytm announced a temporary pause in its lending platform operations for a few weeks. The company is in talks with banks to form partnerships, addressing concerns raised by lenders regarding the impact on their portfolios. Bhavesh Gupta, COO of Paytm, assured ongoing engagement with lenders to navigate the situation.

After initially banning Paytm from adding new customers in March 2022, the Reserve Bank of India did a thorough check of Paytm's technology systems. They found ongoing issues where Paytm was not following the rules properly. Paytm estimates a worst case impact of ₹300-500 crore on its annual EBITDA. Analysts predict a 5-15 percent hit on earnings per share (EPS), heightening concerns as the company strives for profitability

Right now, Paytm shares are stuck at a 20% lower circuit. Over the past 5 days, there has been a decline of -35.94%. Zooming out to the past 6 months, it's been a tougher journey with a decrease of around 37%. If we look at the overall picture since the beginning, Paytm shares have seen a drop of almost 69%.

Final Words

Paytm is going through a difficult phase following strict measures from the Reserve Bank of India on its lending services. How well Paytm deals with these issues, talks to lenders, and handles the rules will be crucial in deciding its future. Investors watch closely how Paytm manages to bounce back from this setback, before taking a fresh position.