Paytm shares sustain early gains after block deal of Rs 103 crore

The Paytm stock rose over 9 percent on January 7 morning, extending the previous session’s gains, staging a recovery after falling around 42 percent in three straight sessions in the aftermath of RBI’s curbs on its payments bank unit.

The rally came as around 21 lakh shares, or 0.3 percent equity, worth Rs 103 crore changed hands. The details of the buyer and seller are not yet known.

At 9.33 am One 97 Communications, the parent company of Paytm, was trading at Rs 492.25 on the National Stock Exchange, up 9.3 percent from the previous close.

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In the week gone by, the Reserve Bank of India imposed sweeping curbs on Paytm Payments Bank business, including restrictions against accepting new deposits and carrying out credit transactions after February 29.

Following this, brokerages sharply cut Paytm ratings and target prices. Jefferies cut the target price to Rs 500, while Macquarie cut it to Rs 650.

The development led to a rout in Paytm shares and the Vijay Shekhar Sharma-led company has since been in a crisis management mode since, trying to contain the fallout from more negative news flowing in.

The company has denied facing investigation from the Enforcement Directorate (ED) after reports claimed that a probe may be initiated if charges related to money laundering are found.

Also Read | Paytm stock crashes another 10%, hits lower circuit again; loses over 42% in 3 days

As reported by Moneycontrol, the Reserve Bank of India may consider cancelling Paytm’s banking licence as early as next month once the depositors’ money is safe.

The banking regulator halted most of the firm’s banking business after multiple warnings on dealings between its payments app and banking unit.

What next for Paytm stock?

In a recent note, Bernstein maintained its ‘Outperform’ rating on Paytm stock with a target of Rs 600 per share, as it felt that the stock was near its ‘doomsday valuations. While the regulatory actions will have a lasting impact on investors’ assessment of the business model risks, Bernstein expects Paytm to successfully execute the operational changes needed to over the RBI restrictions.

According to JM Financial, Paytm’s profitability may be impacted by over 10 percent as wallet use cases tend to be higher yielding. Paytm has clarified that it will only work with other payment banks and not Paytm Payments Bank going ahead, which is expected to take time. “We believe this is likely to lead to a meaningful impact on valuation multiples,” the brokerage.

Paytm expects a worst-case impact of Rs 300-500 crore on EBITDA annually. Given the adverse developments, JM Financial has downgraded the stock to ‘Sell’ from ‘Buy’ earlier with a target price of Rs 590.

Analysts at JP Morgan think risks to forward projections are high and difficult to quantify. While they don’t believe that the order is the end of the road for Paytm, it materially impacts near-term growth, profitability, forces another pivot and necessitates it to restore credibility of durability of the business.

The international brokerage has downgraded Paytm stock to ‘Underweight’ with a target price of Rs 600 per share.

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