During Wednesday's trading session, Paytm shares experienced a 5 percent lower circuit, marking a notable downturn after a robust upward trend observed since Friday, thus underscoring the prevailing uncertainty surrounding the company's stock.
The decline saw Paytm shares dropping by 4.99 percent in early trade on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), trading at Rs 406.15 and Rs 406.20, respectively.
This downturn is attributed to the prevailing uncertainty surrounding Paytm’s operations from March 15, stemming from the Reserve Bank of India’s actions against its associate, Paytm Payments Bank. Additionally, foreign brokerage firm UBS released a note, maintaining a ‘neutral’ rating on Paytm but revising its target price downward to Rs 510 from Rs 650. The note suggested that any potential re-rating of the stock would heavily depend on execution, indicating that the substantial re-rating potential initially anticipated is unlikely in the short term.
UBS foresees immediate financial repercussions on Paytm’s operations in Q4FY24, coupled with a sustained business loss in FY25E. The brokerage predicts a potential decline in Paytm's market share in the payments industry, attributing it to various factors such as permanent wallet issues and merchant and customer churn. Furthermore, UBS estimates a decrease in net payments margin and loan origination activity, with a projected halt in loan disbursements for most of Q4.
The recent resignation of Vijay Shekhar Sharma as part-time non-executive chairman of Paytm Payments Bank has also influenced investor sentiment. Despite the positive news flow that supported the stock's rise in the preceding sessions, the latest downturn indicates ongoing volatility and suggests that Sharma's resignation has not assuaged investor concerns.
Several global brokerages, including Macquarie, have downgraded Paytm stock, with some revising their target price downwards. These actions reflect concerns over the potential impact of RBI's restrictions on Paytm's core operations, as well as the potential loss of confidence among users and investors due to regulatory actions.
Given the uncertainties surrounding Paytm's operations until March 15, investors should brace for continued high volatility in the company's stock, awaiting clarity on the ramifications of RBI's actions against Paytm Payments Bank on its core operations.
