Paytm shares hit new low! what's causing pessimism in stock—What should investors do with this counter now?

Share of Paytm has been eroding money of the investors since its discount listing on the exchanges.  Shares of One97 Communications, the parent company of digital payments major Paytm, slipped over 2 per cent to new 52-week low value of Rs 1130 per share on the BSE on Tuesday.  

The fall in the share price continued on Tuesday despite the company recording over 4-fold jump in loan disbursals during the October-December 2021 period.  

The decline in the share holds significance as global brokerage Macquarie maintained its ‘underperform’ rating on the stock and reduced its target price (TP) to Rs 900 per share.  

See Zee Business Live TV Streaming Below:

Big Fall!

With the current decine, shares One97 Communications have corrected 47 per cent on its issue price of Rs 2,150 per share. The stock had hit a record high of Rs 1,961.05 on November 18, but has failed to touch its issue price post listing. 

Reasons for decline

Talking about what's causing the stocks to trade lower, Likhita Chepa, Senior Research Analyst at CapitalVia Global Research said resignation of key executives, which could have an impact on business and the RBI's plan to cap charges on digital payments, which could again affect company's revenue, are the two major factors contributing to the stock's pessimism.  

What should investors do?

"Paytm's application for insurance broking was recently denied, highlighting the risk that the fintech giant faces in clearing regulatory hurdles. Considering the aforementioned factors, we recommend avoiding this stock at current levels," 

Ravi Singh, Vice President & Head of Research, Share India Securities, said Paytm's entry into insurance sector was recently rejected by IRDAI. This could impact its prospects of getting a banking licence, he said. "We expect Paytm to touch even lower levels of Rs. 1050-1000 in near terms. Investors may remain cautious towards taking fresh positions in Paytm for time being," he said.  

Paytm’s payment business accounts for about 70% of revenue, which will be under threat if there are any regulatory changes, said Manoj Dalmia, Founder and Director at Proficient Equities Private Limited. Also, its entry into insurance sectors has been rejected by regulators. "The stock is trading at about 17 times FY23 sales which seems overvalued considering higher expenses and risk of attrition of senior executives. Paytm shares have also slid below Rs 1285 key support. We expect a small retracement till Rs 1336.35 if any buying happens and then further decline to Rs724.60," said Dalmia. 

Ravi Singhal, Vice Chairman at GCL Securities, said Paytm is oversold on the hourly chart of the Relative Strength Index. "Therefore, buy is recommended in the range of Rs 1100 to Rs 1140 with stop loss of Rs1077 for target of Rs 1244," he suggested.  

Paytm Q3FY22 business update 

Earlier, Paytm on Monday reported its Q3FY22 business update and said the number of loans disbursed through its platform increased by 401% YoY to 44.14 lakh loans in Q3FY22 against 8.81 lakh loans disbursed in Q3FY21.  

In Q3FY22, the value of loans disbursed through the platform during the quarter was Rs 2180 crore (run-rate of $1 .2 billion), an increase of 365% YoY compared to Rs 470 crore disbursed in Q3FY21. The company’s monthly transacting users (MTU) showed consistent growth in FY21 and the first two-quarters of FY22.  

The trajectory has continued in the third quarter of FY22 with 6.44 crore average MTUs, a growth of 37% YoY over the 4.71 crores average MTUs in Q3FY21.  

Growth of Gross Merchandise Value (GMV) continues in Q3FY22 even after the festive season. GMV processed through the platform during the quarter aggregated to approximately Rs 2,50,100 crore ($33.6 billion), a growth of 123% YoY compared to Rs 1,12,100 crore posted in Q3FY21. Monthly GMV per MTU at 12950, Up 54.4% YoY.