Paytm shares freeze at 20% lower circuit on RBI action; Jefferies downgrades the stock

Paytm share price BSE, RBI ban on Paytm Payments Bank: Shares of One 97 Communications, the parent company of Paytm, hit a 20 per cent lower circuit of Rs 608.8 in Thursday’s trade, a day after the Reserve Bank of India (RBI) prohibited Paytm Payments Bank from accepting deposits or top-ups in any customer account, prepaid instrument, wallet, or FASTags after February 29, 2024.

The Reserve Bank's action against Paytm Payments Bank follows a comprehensive system audit report and a subsequent compliance validation report from external auditors.

Following the development, global brokerage Jefferies downgraded the stock to ‘underperform’ from the previous ‘buy’ rating with a reduced target of Rs 500 from Rs 1,050, implying a significant downside of over 34 per cent.

However, later in the day, Paytm, through a filing, informed investors that the company was taking immediate steps to comply with RBI directions, including working with the RBI to address their concerns as quickly as possible.

"The company would like to update that it has been informed by its associate entity, Paytm Payments Bank Limited (“PPBL”), that the Reserve Bank of India ("RBI"), vide its press release dated January 31, 2024, has given it further directions under Section 35A of the Banking Regulation Act, 1949. PPBL is taking immediate steps to comply with RBI directions, including working with the RBI to address their concerns as quickly as possible," the filing read.

On Wednesday, the stock of Paytm ended a tad lower at Rs 761, down 0.01 per cent.

Macquarie, however, retained its 'neutral' call on the stock with a target of Rs 650, signalling a potential downside of over 14 per cent. Similarly, Citi also continued with its 'neutral' rating on the counter with a relatively higher target of Rs 900, implying potential gains of over 18 per cent.

Earlier, in mid-January, UBS initiated coverage on the fintech firm with a buy and 1-year price target set at Rs 900. The brokerage maintained a positive view as it reckons a moderating 21 per cent top-line CAGR in FY24-28 while operating leverage is also playing out as marketing expense requirements ease and ESOP costs moderate. Consequently,  the brokerage expects the company to break even on EBITDA in FY25 and reach a 20% EBITDA margin by FY28. 

Paytm's Q3 FY24 performance

In the October-December period of the current fiscal year, the fintech firm's losses narrowed to Rs 221.7 crore on a 38 per cent on-year increase in revenue from operations to Rs 2,850.5 crore. Losses in the corresponding period of the previous fiscal were Rs 392.1 crore.

Paytm's share price performance

Shares of Paytm in the past year delivered more than a 16 per cent return.