Is Paytm Approaching Its Bottom?

Paytm’s shares are down over 70% from its issue price of Rs 2,150 apiece. Some feel it will become a value buy, while others hope to see an uptick. What’s the future of the stock from here?
Is Paytm Approaching Its Bottom?

What’s Happening?

The shares of Paytm are trading around Rs 540/share. Will it continue to fall? Where’s the bottom? Analysts feel that the stock could slide below Rs 400. The stock drew the recent flak after RBI barred Paytm Payments Bank (PPB) from onboarding new customers as it found technology gaps in its systems. The central bank said it would carry out an audit in the IT system of the company. Also, Paytm’s founder Vijay Shekhar Sharma rammed into a senior official’s car, which drew a negative image on the company’s top management. Factoring in these recent developments, it’s difficult to gauge the bottom of the stock. It will likely continue to tank because there’s still no clarity on the ‘profitability’ of the company.

What Are The Revenue Channels?

According to the company’s DRHP filed last year, 33% of Paytm’s revenue comes from PPB directly. The recent RBI ban could now dry up the company’s revenue channel. The dreams of Paytm getting a small finance bank (SFB) licence is lost in thin air. The biggest problem could be RBI asking PPB to close the bank accounts for which it did not do full KYC.

PPB houses all the critical products of Paytm – wallet, UPI and deposit accounts. All of Paytm’s 330 million-plus wallet accounts and over 150 million UPI handles are housed in PPB. Until and unless the RBI ban is not lifted, the company’s revenue channels seem to be blocked.

Should This Concern You?

Hypothetically let’s say Paytm solves this problem. It will still not be able to build customer loyalty and reputation in the near future. The market will remember the price erosion and the loss of investors’ wealth. The SFB licence was essential because it would have made Paytm a financial institution. The company’s high growth was simply because of the growth in the lending business. Therefore, the future profitability of Paytm depends on the SFB licence.

What Lies Ahead?

The RBI is miffed with Paytm and will not loosen its grip unless the company proves it wrong. Some are also displeased with how the top management handles the whole situation. Until this is settled, the stock will remain under pressure and move towards its bottom.

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