Paytm shares in focus as CEO Vijay Shekhar Sharma meets FM Nirmala Sitharaman

Shares of One 97 Communications Ltd (Paytm) will be in news on Wednesday after media reports suggested CEO and founder Vijay Shekhar Sharma met Finance Minister Nirmala Sitharaman following the RBI measures, a day after he met top RBI officials. Besides, the stock would also react to reports that the Directorate of Enforcement (ED) is likely to initiate a formal probe into Paytm to investigate issues flagged in the reference from the Reserve Bank of India (RBI).

Paytm had earlier denied reports suggesting ED was investigating against the company, its associate Paytm Payments Bank or CEO. It had also denied reports of investigation or violation of Foreign Exchange rules by Paytm or its associate Paytm Payments Bank.  The Paytm stock has been under pressure since the RBI announced restrictions on Paytm Payments Bank’s operations amid persistent non-compliances and continued material supervisory concerns.

Quoting people familiar with the matter, ET suggested the ED might formally investigate Paytm based on concerns raised by the RBI. Foreign brokerage UBS sees certain execution risks that may further pressure Paytm earnings and investor sentiment.

"This uncertain outlook drives a wide range of potential outcomes. In our new base case we assume around 3 per cent  share loss in payments GMV, a 1bp loss in payment margin, 5-10 per cent loss in merchant and customer bases and 10 per cent loss in loan origination business. We forecast Paytm to turn Ebitda breakeven by FY26 (previously FY25E), and this event increases risk around our earlier thesis," UBS said last week.

As per UBS, key areas where management needs to deliver over the next month to minimise disruption are: migrating customer UPI handles of PPBL to another bank; the regulator has previously given a one-time dispensation. Failure to do this may result in customer churn.

UBS said the management needs to shift all PPBL merchant QRs to another bank as nearly 15 per cent of merchant QRs are on PPBL. This may require on-the-ground push or else merchant churn is likely, it said.

Besides, it needs to move nodal banks of Paytm to another bank, likely an easier process; and PPBL UPI functionality on PG/PoS to another bank, which is an easy switch, as per Paytm. Also, it may need to move 60,000-70,000 loan repayment merchant accounts on PPBL to another bank.

Also read: Why Nykaa shares missed a potential re-rating; stock price target & more