The Reserve Bank of India's directive effectively ending Paytm Payments Bank operations could be a key risk to the earnings and valuation of the parent firm One97 Communications, said foreign broking firm Jefferies. This is because higher margin products like wallets and FASTag, which were dependent on the payments bank entity, will now have to be wound down.
"For all practical purposes, RBI action ends the operations of Paytm Payments Bank," said Bernstein in a note to investors. However, Bernstein expects no immediate impact to One97 Communications' UPI Payment business that accounts for 70 percent of GMV (gross merchandise value).
The central bank on January 31 said that Paytm Payments Bank will not be allowed to accept fresh deposits, undertake credit transactions, or top-ups in any customer accounts. This also includes prepaid instruments, wallets, FASTags, and NCMC cards, among others.
Also Read: RBI deals body blow to Paytm with crippling restrictions on its payments bank
"This is a definite negative development and adds to the already heavy regulatory overhang on the business," said Bernstein.
According to Jefferies, a potential key impact of RBI's move can be on lending business, over 20 percent of revenue, if lending partners limit business due to operational and governance risks. Bernstein differs here as it sees no impact to lending business.
Wallets, which forms 5 percent of GMV, may need to be wound down and Fastag GMV where Paytm is the third largest player with 5.8 crore customers will also be majorly affected, noted Jefferies. GMV stands for gross merchandise value.
"While the management has not indicated the contribution from these segments, we estimate that these segments would be sub-10 percent of segments' revenue and 5 percent overall revenues," Jefferies noted.
Also Read: RBI action on Paytm Payments Bank: Key details you must be aware of
Further clarity awaited
RBI has also said that the nodal accounts of One97 Communications and Paytm Payments Services are to be terminated at the earliest, in any case not later than February 29, 2024.
"Potential impact will depend whether the restriction is on either (1) Nodal account of One97 with Paytm Payments Bank or (2) all Nodal accounts of One97. The former will have marginal impact on business, whereas the latter can have material impact," Jefferies said.
Investors and analysts now keenly await Paytm managing director Vijay Shekhar Sharma's statement on RBI's restrictions. To be sure, when RBI had banned Paytm Payments Bank from onboarding new customers back in 2022, Sharma had said that the entity operates at an 'arm's length' from One97 Communications.
Stock movement
The stock gained close to 60 percent last calendar year till November, but then saw a sharp fall when RBI cautioned against rising unsecured consumer loans in the system. Soon after, Paytm also announced that it will be scaling down its small-ticket loans, a flagship feature used by several merchants on the platform.
It currently trades at ~3.9 times its book value, and the company has not turned profitable yet.
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