Shares of Paytm plummeted by 20% on Friday, triggering a temporary halt in trading, as the Indian financial services firm grapples with the repercussions of the central bank’s crackdown. The stock fell to 487 Indian rupees, equivalent to $5.88, marking its lowest point in 55 weeks. This decline resulted in a staggering $2.1 billion loss in market capitalization over the span of two days.
Key Takeaway
Paytm faces significant challenges following the Indian central bank’s stringent measures, resulting in a substantial decline in market capitalization. The company is striving to navigate these obstacles and minimize the impact on its various business segments.
Reserve Bank of India’s Expanded Restrictions
The Reserve Bank of India (RBI) recently imposed heightened restrictions on Paytm’s Payments Bank, which handles transactions for the financial services giant. These measures include the suspension of various banking services, such as new deposits and credit transactions. In response, Paytm announced its intention to sever ties with its affiliate and pursue collaborations with other banks.
Market Response and Paytm’s Mitigation Efforts
Despite Paytm’s assurance that the RBI’s directives would at most result in a $60 million reduction in its annual EBITDA, the market has interpreted the situation differently. The company’s management aims to offset the losses gradually and anticipates a manageable impact on its UPI business. While economic factors are projected to remain largely unchanged, there may be a moderation in UPI incentive fees, according to analysts at Morgan Stanley.
Paytm’s current market capitalization stands at $3.7 billion, positioning it at less than one-third of its private competitor, Walmart-backed PhonePe. Despite generating more than double the revenue of PhonePe, Paytm has encountered difficulties in revising its stock price targets. Morgan Stanley, for instance, reduced its price target for Paytm to 555 Indian rupees from 690.
Furthermore, there are indications that the Indian central bank may consider further penalties against Paytm, including the potential revocation of its payments bank license.
