Paytm shares hit 20% lower circuit on RBI restrictions; what Jefferies, Macquarie, Bernstein say

Shares of One 97 Communications Ltd (Paytm) were locked at 20 per cent lower circuit limit on Thursday's morning after as host of brokerages expected serious implications of the RBI's latest restrictions on earnings and valuations. Jefferies has downgraded the stock to 'Underperform' and suggested a target of Rs 500 per share. Macquarie, another foreign brokerage, has so far maintain 'Neutral' but cut its target price to Rs 650 per share.

Paytm shares were locked at Rs 608.80 on BSE, down 20 per cent, as RBI asked Paytm Payments Bank Ltd to refrain from undergoing new credit and deposit operations, top-ups, fund transfers, and other such banking operations from February 29. Macquarie, a foreign brokerage, said the move would have serious implications, as it would significantly hamper Paytm's ability to retain customers in its ecosystem.

Bernstein said the RBI notification essentially meant ending the operations of Paytm payment bank. It is a definite negative development and adds to the heavy regulatory overhang on the business, it said.

Paytm, in a update earlier today, said it has been informed that the RBI move does not impact user deposits in their savings accounts, Wallets, FASTags, and NCMC accounts, where they can continue to use the existing balances. It said it would be working only with other banks, and not with Paytm Payments Bank Limited. Paytm's offline merchant payment network offerings like Paytm QR, Paytm Soundbox, Paytm Card Machine, will continue as usual, where it can onboard new offline merchants as well, Paytm suggested.

"We think revenue and profitability implications in the medium to long term could be significant and remain a key item to monitor," it said.

Macquarie said the RBI took 15 months to revoke its ban on digital business activities of the largest private sector lender.  "But in Paytm's case, since the first ban (in March 2022) for onboarding new customers (22 months have lapsed), the RBI has conducted a comprehensive IT audit and continued to identify non-compliance, which in its view indicates that the lapses are quite material," it said.

The foreign brokerage said it does not see any near-term solution to the problems and this effectively means, that the RBI indirectly revoked the pre-paid instrument licence of Paytm.

Jefferies believes that the wallet gross merchandise value (GMV) may need to be wound down and that the merchants using Paytm Bank, accounting for 6 per cent of devices, may be impacted. 

"Fastag GMV will be majorly affected," it said. "This can be key risk to earnings/ valuations & we await details from management, it added.

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