Shares of Paytm were locked at 20 percent lower circuit for the second consecutive day on February 2 amid the Reserve Bank of India's whip on its lending business. This included restriction against accepting new deposits and carrying out credit transactions after February 29. Brokerages turned wary after the RBI directive, leading to a decrease in target prices for the stock.
Jefferies, for instance, downgraded Paytm to 'underperform' from 'buy', slashing the target price by more than half to Rs 500 from Rs 1,050 per share.
"The key impact would be felt on Paytm's lending business if lending partners limit business due to operational or governance issues," Jefferies noted.
Macquarie, too, cut its target price to Rs 650 per share, while maintaining a 'neutral' stance on the stock. The brokerage firm does not see any near-term solution to Paytm's problems as it believes the lapses found out to by RBI to be material.
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"After the first ban in March 2022 for onboarding new customers, the RBI has now conducted a comprehensive IT audit and and continued to identiy non-compliance, which in its view indicates that the lapses are quite material," the brokerage firm underlined.
Analysts at Bernstein also believed the RBI's directive to be a negative development and said that it added to an already heavy regulatory overhang on the business. "Effectively, the RBI's actions bring an end to the operations of Paytm Payments Bank," they noted.
Soon after the development, the company said that it has paused its lending platform operations for a couple of weeks even as it engages in conversations with banks for partnerships.
"Each lender will have concerns and we are engaging with them. We are clarifying what kind of an impact this will have on the portfolio. They had questions and are processing our answers," said Bhavesh Gupta, COO of Paytm, said.
The company said that it estimates the worst-case impact at Rs 300-500 crore on its annual EBITDA. In addition, fund managers and analysts foresee a 5-15 percent impact on earnings per share (EPS), heightening concerns as the company strives for profitability. There were expectations that the company would reach breakeven on EBITDA by FY25.
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