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Business News/ Markets / RBI action on Paytm: JM Financial sees ‘meaningful’ impact on valuations

RBI action on Paytm: JM Financial sees ‘meaningful’ impact on valuations

Stock Market today: Paytm (One 97 Communications) share price saw a sharp dip of 20% post RBI imposing restrictions on some services. JM Financial sees meaningful impact on valuations. Also Check for 2 major impact on Paytm as highlighted by JM Financial Institutional Securities

Paytm share price declines 20% post RBI restrictions on some servicesPremium
Paytm share price declines 20% post RBI restrictions on some services

One 97 Communications Ltd (Paytm) share prices saw a steep fall of 20% on Thursday. RBI has imposed significant restrictions on Paytm Payments Bank Limited (PPBL), an associate company of One 97 Communications (Paytm). These restrictions are an outcome of “continued material supervisory concerns in the bank, warranting further supervisory action", according to RBI.

JM Financial Institutional Securities Limited estimate following impact on Paytm

1. Wallet GMV is 5% of the GMV (gross merchandise value) of Paytm. In addition, FASTag could be another use case which is likely to be impacted where industry run rate is at 5000 crore a month by value and Paytm is 3rd largest player. Overall combined impact as per JM Financial could be  about 10% of GMV - though profitability impact could be higher as wallet use cases tend to be higher yielding.

Also Read-Paytm share price hits 20% lower circuit after RBI's restrictions on Paytm Payment Bank

2. While UPI (Unified Payments interface) and BBPOU (Bharat Bill Payment Operating Unit) services are allowed, analysts at JM Financial say that we need to see how closure of Nodal accounts of PPBL (Paytm payment Bank) and OCL is likely to impact business. If all Nodal accounts of OCL are shut, it implies significant slowdown in payment throughput.

RBI press release as per analysts does not directly imply any meaningful impact for lending business for Paytm (20% of revenues), though implies significant discomfort with respect to operational lapses and supervisory concerns at PPBL and thus could lead to greater scrutiny incrementally.

Also JM Financial highlighted that OCL clarified via a press release that it will only work with other payment banks and not PPBL going ahead, which in our view will take time. 

Meaningful impact on valuation multiples-

Analysts at JM Financial believe this is likely to lead to a meaningful impact on valuation multiples. The company expects worst case impact of 300-500 crore on Earnings before interest tax depreciation and amortisation (Ebitda) annually. Given the adverse developments, JM Financials has downgrade the stock to sell with target price of 590 (valuing it at 7 times FY26 estimated EV/EBITDA multiple).

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The restrictions imposed by the RBI on Paytm highlighted by JM Financial are as follows:

No further deposit and credit transactions or top ups allowed in any customer accounts, wallet, prepaid instrument, FASTags or other PPIs after Feb 29th, 2024.

Withdrawal or utilization of existing balance is allowed without any restrictions.

UPI and BBPOU services are allowed (along with utilization of existing balances).

Nodal Accounts of One97 Communications and Paytm Payments Services Ltd to be terminated before 29th February, 2024.

Settlement of all pipeline transactions and nodal accounts shall be completed by 15th March, 2024 and no transactions permitted beyond.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions


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Published: 01 Feb 2024, 10:16 AM IST
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