 "Jefferies suspends Paytm coverage amid uncertainty; shares jump 5%")
Brokerage house Jefferies on Monday dropped coverage for Paytm (One 97 Communications), even as the stock gained for the second consecutive day. The brokerage house had earlier given an ‘underperform’ rating to the fintech firm.
“Factoring in the direct and indirect impact, we now see a 28 per cent year-on-year decline in FY25E revenues that pushes Paytm into cash burns. Still, positive and negative risks arise from user/merchant retention, revenue traction & cost-controls. We move to ‘not rated’ until the news flow settles down,” said Jefferies.
Meanwhile, shares of One97 communications —owner of the brand Paytm — jumped 5 per cent in the morning trade on Monday after the crisis-hit fintech company's decision to collaborate with Axis Bank for the continuation of merchant settlements.
Jefferies estimates an impact of 20 per cent in the FY25E earnings before interest, taxes, depreciation, and amortisation (Ebitda). The brokerage house said that the Reserve Bank of India (RBI) FAQs removes any option of sale or transfer of the impacted business and signals closure of the wallet business.
The RBI issued a detailed FAQ for the users on Friday giving clarity on the operations ahead.
While no respite has been provided by the RBI on transactions of wallet and FASTag accounts, the central bank has extended the timeline for usage of Paytm Payments Bank by nearly two weeks.
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Jefferies said that it is keeping eye on regulatory clarity on two key issues including the outcome of the investigations by the Enforcement Directorate RBI’s view on the method of transition for VPA (Virtual Payment Address) handle to Paytm users.
“In the medium term, government approval for payment aggregator license to subsidiary Paytm Payments Services will be key to monitor,” Jeffries analysts Jayant Kharote and Prakhar Sharma said in their report.
“On the basis of merchant/user attrition to the tune of 10-30 per cent and a hit to net revenues (adj. for payments interchange) of 20-45 per cent, valuation could vary widely,” they added.
However, Paytm continues to be rated by other brokerage firms like CLSA and ICICI Securities which have a buy rating, and Citi, Axis Capital and JM Financial have each recommended a ‘Sell’ on the stock.
While Macquarie has given a target of Rs 275 apiece with an underperform rating, JP Morgan has rated it as underweight with a target of Rs 600.
Shares of Paytm hit an upper limit of 5 per cent on Monday rising to Rs 358.6. The shares surged on the Reuters report stating that the Enforcement Directorate had not yet found any breaches of the foreign exchange violations by the firm led by Vijay Shekhar Sharma.
The stock has gained over 10 per cent in the last two sessions after hitting lower circuits for the three consecutive trading days. The stock is currently 52 per cent down from the levels when the RBI barred Paytm Payments Bank.