Paytm stock jumps 10% to hit upper circuit after large trade of shares

Jefferies cut the target price on Paytm stock to Rs 500, while Macquarie cut it to Rs 650.

Paytm managed to hold gains and end 10 percent higher on January 7, extending the previous session's gains, staging a recovery after falling around 42 percent in three straight sessions in the aftermath of RBI's curbs on its payments bank unit.

The rally came as around 21 lakh shares, or 0.3 percent equity, worth Rs 103 crore changed hands. The details of the buyer and seller are not yet known.

Paytm share price at close was Rs 496.25 on the National Stock Exchange.

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In the week gone by, the Reserve Bank of India imposed sweeping curbs on Paytm Payments Bank business, including restrictions against accepting new deposits and carrying out credit transactions after February 29.

The development led to a rout in Paytm shares and the Vijay Shekhar Sharma-led company has since been in a crisis management mode since, trying to contain the fallout from more negative news flowing in.

Now, sources have told Moneycontrol that RBI is considering cancelling the licence of Paytm Payments Bank after the March 15 deadline to close the business and settlement of transactions runs out, “That’s the intention as of now,” they said on condition of anonymity.

Also Read | Paytm stock crashes another 10%, hits lower circuit again; loses over 42% in 3 days

Paytm had built a business of significant value and was on the path of profitability, according to Hiren Ved, chief investment officer of Alchemy Capital. Even though the company has quantified the impact of the central bank's restriction, he was not sure how much time the company will take to claw back what they lost.

"By the time Paytm clarifies how it handles the situation, the stock will remain in its current levels," said Ved.

What next for Paytm stock?

Following the RBI order, brokerages have sharply cut Paytm ratings and target prices. Jefferies cut the target price to Rs 500, while Macquarie cut it to Rs 650.

In a recent note, Bernstein maintained its 'Outperform' rating on Paytm stock with a target of Rs 600 per share, as it felt that the stock was near its 'doomsday valuations. While the regulatory actions will have a lasting impact on investors' assessment of the business model risks, Bernstein expects Paytm to successfully execute the operational changes needed to over the RBI restrictions.

According to JM Financial, Paytm's profitability may be impacted by over 10 percent as wallet use cases tend to be higher yielding. Paytm has clarified that it will only work with other payment banks and not Paytm Payments Bank going ahead, which is expected to take time. "We believe this is likely to lead to a meaningful impact on valuation multiples," the brokerage.

Paytm expects a worst-case impact of Rs 300-500 crore on EBITDA annually. Given the adverse developments, JM Financial has downgraded the stock to 'Sell' from 'Buy' earlier with a target price of Rs 590.

Analysts at JP Morgan think risks to forward projections are high and difficult to quantify. While they don’t believe that the order is the end of the road for Paytm, it materially impacts near-term growth, profitability, forces another pivot and necessitates it to restore credibility of durability of the business.

The international brokerage has downgraded Paytm stock to 'Underweight' with a target price of Rs 600 per share.

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