Pain continues for Paytm after RBI bans PPB from onboarding new customers. Is it a value buy?
Despite the stock's steep decline since its November 18 IPO, there was some good news for Paytm investors last week. The news that the fintech behemoth would approach the RBI for a small finance bank (SFB) licence in June helped. The RBI's decision to bar Paytm Payments Bank from accepting new customers due to possible technology system flaws caused a 13% drop in early trading on Monday. By Monday's close, this stock had lost 69% of its IPO issue price of INR2,150. The central bank has also hired an independent audit firm to audit its IT systems to address "material supervisory concerns." But the decline during the week as its CEO failed to allay investors' fears about the company's profitability in the wake of a scathing report.
What is the true bottom of Paytm stock from IPO to current price of INR 597?
In light of recent events and the uncertainty surrounding profitability, the price has been revised to around INR 400-450, as many market analysts had predicted. It's hard to tell where the bottom is because it's not clear when the company will be profitable. However, Ashneer Grover, the former CEO of Bharat Pe, thinks it's a good buy right now.
There is a significant role for PPB, which is owned by One97 (49%) and Vijay Shekhar Sharma (51%), in the company's growth and future prospects. According to a red herring prospectus (DRHP) filed last year, PPB generated approximately INR900 crore, or 33% of Paytm's revenue in FY21. On-boarding bans were only temporary in the cases of Mastercard and HDFC bank, but this isn't always the case. If you are wondering why the Reserve Bank of India (RBI) has restricted PPB, other possible reasons include failing to close old accounts, not performing full KYC (know your customer) on those that have been open for more than a year, or even failing to respond to information requests from the regulator "
Since the rise of the lending business, Paytm's growth has been fueled by it. There's a lot of competition in the core business. Paytm has yet to make a profit as a company. It has made money in this area. Because of the issues with PPB and Sharma's 51% stake, existing investors may push Paytm to cut ties with it. However, this could lead to a new set of problems. If the payments bank is separated from Paytm, the value proposition of Paytm will be significantly reduced." Divestiture may be a short-term fix, but it doesn't address the concerns of minority shareholders, according to Sandip Sabharwal.
In spite of being India's largest IPO, Paytm's share price has dropped to about 70% of its initial price of INR2,150, according to Bloomberg. This downward trend in the stock price may not abate any time soon. The ban has a negative impact on Paytm because it raises concerns about the company's transparency and accountability. Regulatory scrutiny of companies like BharatPe and Dhani Services is expected to increase. Because of its oversold status, the stock may be attractive to traders looking for short term profits, but value investors may not be interested at this price point.
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