Paytm looks like ‘no-go zone’, investors will take time to regain confidence: Nilesh Shah

Jefferies has downgraded its rating of Paytm stock to 'underperform' from ‘buy’

Paytm now looks like a bottomless pit and a ‘no-go zone’, and it will take time for investors’ confidence to return, said Nilesh Shah of Envision Cap. Paytm shares tanked 20 percent on February 1 to hit the lower circuit, after the Reserve Bank of India put restrictions on the company's lending business which also includes a prohibition on accepting fresh deposits and doing credit transactions post-February 29.

“No further deposits, credit transactions or top-ups will be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024, other than any interest, cashback, or refunds that may be credited anytime,” said RBI.

The RBI said a validation report of the external auditors revealed “persistent non-compliance and continued material supervisory concerns in the (Paytm Payments) Bank” thus forcing it to take such drastic action.

“RBI Circular is reasonably damning and will put brakes on Paytm’s business which is already challenged right now. If they don't mend it, competition will walk away with business opportunities,” Shah told CNBCTV18.

Following the RBI’s action, Paytm informed exchanges that founder Vijay Shekhar Sharma has not taken any margin loans, or otherwise pledged any shares that are directly or indirectly owned by him. The company further said that the RBI’s move against Paytm Payments Bank may hit its annual EBITDA by Rs 500 crore in the worst-case scenario.

Also Read | RBI imposes major business restrictions on Paytm Payments Bank

“Regulatory challenges are always a risk for the business and the responsibility of the regulator is to plug systemic risks and apply brakes,” Shah added.

Global brokerage, Jefferies has downgraded its rating of Paytm stock to 'underperform' from ‘buy’ and slashed the price target for the stock by more than half to Rs 500. Macquarie has a 'neutral' rating on the stock with a target price of Rs 650 per share.

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