Shares in Paytm fell another 20% on Friday before hitting a lower circuit that temporarily halts trading as the Indian financial services firm reeled from a crackdown by the central bank.
Paytm fell to 487 Indian rupees, or $5.88, within minutes of the market opening, a 55-week low. Shares of Paytm also fell 20% on Thursday. Paytm, which currently has a market capitalization of $3.73 billion, has lost $2.1 billion from its market capitalization in two days.
The Reserve Bank of India (RBI) this week widened restrictions on Paytm’s Payments Bank, which processes transactions for financial services giant Paytm, barring it from offering many banking services, including accepting new deposits and credit transactions on its services. In response, Paytm said it will end operations with its subsidiary and seek partnership with other banks.
Although Paytm insists that the RBI’s direction will, at worst, wipe out $60 million from its annual EBITDA, the market at large is reading the situation differently.
Paytm’s management aims to offset the loss over time and sees a manageable impact on UPI’s business, they said in an analyst call on Thursday evening. While the economy is expected to remain largely unchanged, there could be some moderation in UPI incentive provisions, analysts at Morgan Stanley said on Friday.
“Paytm does not see any impact on insurance distribution and stock broking businesses. In terms of loan distribution, management expects disbursements to be restrained in the coming weeks and said it is in the process of contacting partners to explain current conditions. In addition, the bank has some merchant loans where settlement is done in PPBL (Paytm Payments Bank Limited) bank accounts – it said it is in the process of moving to alternative merchant bank accounts and does not expect any significant impact. “, the analysts wrote in a note.
With a market cap of $3.7 billion, Paytm is valued at less than a third of its privately held rival, Walmart-backed PhonePe. PhonePe, which raised $850 million last year at a $12 billion valuation, makes less than half of Paytm’s revenue. Also, Paytm has raised more than $5 billion in private rounds and IPOs.
Market analysts are struggling to revise their price target on Paytm stock. Morgan Stanley in a note to clients on Friday said it was cutting its price target on Paytm to 555 Indian rupees from 690 on Thursday.
The Indian central bank may also be yet to finalize its sanctions on Paytm. It has discussed internally revoking Paytm’s payments bank license, TechCrunch reported on Thursday.
