Shares of One97 Communications, or commonly known as Paytm Shares, the parent company of digital payments firm Paytm, have plunged sharply over the last two trading sessions after the Reserve Bank of India (RBI) barred its payments bank from taking on new customers.
The stock crashed 20% to hit the lower circuit limit for the second straight day on Friday, February 2nd, taking the total decline over two days to 40%. Paytm’s shares closed at Rs 487, the lowest level since its market debut in November 2021.
RBI Ban Triggers Steep Fall for Paytm Shares prices
On Wednesday, the RBI ordered Paytm Payments Bank to stop onboarding new customers with immediate effect and appointed an IT audit firm to conduct a comprehensive audit of its IT systems.
While Paytm’s management has said its other businesses remain unaffected, investors are worried about reputational risks and the potential impact on future monetization opportunities.
The sharp fall in the stock has eroded Paytm’s market value by nearly Rs 10,000 crore to about Rs 39,000 crore now. Its share price has tumbled 51% from its all-time high of Rs 1,961 hit in November 2021.
Analysts Turn Bearish, Downgrade Stock
Reflecting the negative sentiment, several analysts have downgraded the stock over the last two days.
JPMorgan downgraded Paytm to “underweight” from “neutral” and slashed its target price. It cited loss of monetization opportunity and probable impact on the lending business due to the RBI action.
Jefferies also believes the stock could see a sharp correction as institutional investors may start dumping the stock. It has lowered its target price on the stock.
Both domestic and foreign institutional investors have reduced their holdings in Paytm over the last few months. Analysts expect this trend to continue given the recent developments.
The sharp fall has made Paytm one of the worst performing IPOs of the last few years. It remains to be seen whether the stock can stage a recovery in 2022.
What the company says its doing to regain investor trust
Here are the key steps Paytm is taking to regain the trust of investors after the RBI ban:
- Paytm’s CEO Vijay Shekhar Sharma said the company will focus on demystifying its revenue structure and business model to investors to rebuild trust. It aims to simplify its business into two clear streams – payments and lending.
- The company plans to take immediate steps to comply fully with RBI’s directions. It hopes to get the ban on onboarding new customers revoked as soon as feasible to restore credibility.
- Paytm will increase investments and accelerate growth of its non-payments businesses like credit cards, buy-now-pay-later loans, wealth management etc. These have better profitability potential.
- It also aims to boost revenue from payment gateway, soundbox, POS machine distribution and other payments streams not impacted by the RBI action.
- Rationalizing costs, improving unit economics and moving towards profitability is another key focus area.
In summary, Paytm is trying to simplify its business model, comply with regulations, accelerate more profitable revenue streams and cut costs to regain investor trust after massive erosion in stock value. However, rebuilding credibility completely depends on getting the RBI ban lifted as soon as possible according to analysts.
