Paytm shares rebound 8% after falling 42% in three sessions; here’s why

Shares of One 97 Communications, parent of fintech major Paytm, made some recovery on Tuesday, surging 8% intraday after crashing over 42% in the past three sessions due to Reserve Bank of India's severe action against its lending entity, Paytm Payments Bank Ltd (PPBL). Paytm shares hit 10% lower circuit in pre-open session but recovered smartly in the first hour of trade as investors see opportunity in the beaten-down fintech stock.

Early today, Paytm shares opened lower for the fourth straight session at ₹401, down 8.5% against the previous closing price of ₹435.38 on the BSE. In the early trade, the largecap stock declined as much as 9.8% to hit a fresh low of ₹395.5. The counter, however, staged a smart recovery and rebounded 19.5% from day’s low to touch a high of ₹472.50 on the BSE. The stock witnessed a surge in volume, with 24.5 lakh shares changing hands over the counter compared to the two-week average of 8.15 lakh, while the market capitalisation climbed to ₹28,915 crore.

The stock has lost over ₹19,000 crore in market capitalisation in the last three sessions, hitting 20% lower circuit on February 1 and 2, and 10% on February 5 after the exchanges revised the daily limit to 10% from the 20%. At the current level, Paytm shares trade 53% lower than its 52-week high of ₹998.30 touched on October 20, 2023.

Paytm shares witnessed some recovery on Tuesday after its founder and CEO Vijay Shekar Sharma assured customers that PPBL will continue to be operations even after RBI’s February deadline. “To every Paytmer, Your favourite app is working, will keep working beyond 29 February as usual. I with every Paytm team member salute you for your relentless support. For every challenge, there is a solution and we are sincerely committed to serve our nation in full compliance,” Sharma said in a post on X (formerly Twitter).

The sentiment was also lifted after SoftBank-backed digital payments clarified that neither the company nor its CEO are being investigated by the Enforcement Directorate regarding money laundering. “We would like to set the record straight and deny any involvement in anti-money laundering activities. We have and continue to abide by Indian laws and take regulatory orders with utmost seriousness,” the crisis-hit company says in an exchange filing on February 5.

On reports of acquisition of Paytm wallet by Mukesh Ambani-led Jio Financial, the Noida-based company clarified this morning that the “news item is speculative, baseless and factually incorrect”. “We have not been in any negotiations in this regard. We have been informed by Paytm Payments Bank Limited, our associate company, that they also have not been in any negotiations in this regard,” it says in a BSE filing.

On Monday, Jio Financial Services Ltd (JFS) surged more than 14% intraday amid speculations that the conglomerate and India's biggest private bank HDFC Bank are looking to buy the wallet business of Paytm, after the RBI’s diktat against PPBL.

The RBI in its January 31 order PPBL to stop taking new customers with immediate effect, while it barred the company from taking further deposits or credit transactions or top-ups in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29.

As per the company, the RBI’s action is likely to have a worst case impact of ₹300-₹500 crore on its annual EBITDA going forward. However, it expects to continue on its trajectory to improve its profitability.

Post the RBI action, Jefferies downgraded the stock to 'Underperform' and cut the target price by more than half to ₹500 from ₹1,050 per share. Another foreign brokerage Macquarie lowered its target price to ₹650 per share, while retaining a 'neutral' stance on the stock, saying that there is no near-term solution to Paytm's problems.

For the third quarter ended December 31, 2023, Paytm reported a reduction in losses and a significant jump in revenue, driven by strong performance of the payment services vertical amid an increase in gross merchandises value (GMV) of non-UPI instruments like EMI and cards; increase in payment processing margins on non-UPI instruments; and online sales during festive season.

In Q3 FY24, revenue from the payment business grew by 45% YoY to ₹1,730 crore, while profitability improved with net payment margin expanding 63% YoY to ₹748 crore. As of December 2023, merchant subscriptions were 1.06 crore, while it deployed 14 lakh devices, earning ₹100 to ₹500 per month per device.

Overall, the Noida-headquartered fintech major reported a net loss of ₹222 crore in Q3 FY24, narrowing by ₹170 crore year-on-year from ₹392 crore loss in the year-ago period. The revenue grew 38% to ₹2,851 crore in the third quarter compared to ₹2,062 crore in the same period last fiscal.

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