One97 Communications, the parent company of Paytm, is having its worst time on the bourses as the stock has lost over 50% of its value in less than 3 weeks!

2023 started positively for the stock as it had hit its lowest level in December 2022 and buyers were entering it. Although movement in the stock was minimal initially but investors were positive about the stock’s future.

The Adani-Hindenburg saga led to an overall decline in Indian markets as movement remained slow in the stock. However, February ended the slowdown in the stock as the stock jumped 20% in 3 sessions! The company had managed to achieve EBITDA profitability in Q3FY23, three quarters earlier than expected.

This helped the stock break through its resistance at Rs 593.45 and jump up to the Rs 700 mark! Since the stock surged a lot at once, the rest of February passed with the stock declining but maintaining its support at Rs 593.45. A brief decline came when the US Banking crisis began in mid-March as the stock fell below its immediate resistance but recovered soon thereafter.

April brought about a slow yet steady climb as the stock rechallenged its resistance at Rs 701.40, but this time it managed to sustain a move beyond that level. Although sellers remained strong, buyers were able to maintain its price above the Rs 701.40 level. 

June brought about the stock’s strongest bull run to date as the company reported record growth in its business. The company onboarded over 4 lakh merchants for its payment soundbox service in a month while making disbursements of Rs 5,502 crores in May 2023! This led to a string of call upgrades and several brokerages were positive of Paytm’s business outlook.

The upgrade sent the stock surging as it gained 26% in less than 2 weeks. It breached its resistance at Rs 836.90 while sustaining at such a level. Although the stock was able to maintain around the support, the latter half of July saw the stock breach its support. While the company reported regular growth in disbursals and GMV, there was a decline in the lending take rate, which prompted a selling pressure with the price falling below Rs 836.90.

However, CEO Vijay Shekhar Sharma purchased the entire stake of Antfin Holdings in Paytm, making him the largest shareholder in Paytm. This sent the stock up 12% in a single day as it reclaimed the Rs 836.90 level. 

Although Bulls tried to push the stock even further, sellers did not allow prices to surge beyond the Rs 933.35 mark. It tested the level 3 times as it remained range-bound between its immediate support (Rs 836.90) and immediate resistance (Rs 933.35) for two months.

However, Bulls finally beat Bears in early October when a robust outlook of Fintech firms fueled positivity in the stock and Paytm’s stock was on its way to reach Rs 1,000 per share for the first time since it fell from that level in January 2022. However, before Paytm could reach Rs 1,000, its second-quarter results disappointed investors.

Despite meeting all the revenue and other business metrics’ targets, the stock tanked over 6% in a day to fall below the existing support of Rs 933.35. Although all brokerages had positive future outlooks, the overall market had a bloodbath and Paytm’s share was caught in the crossfire.

However, the momentum was lost as Bulls lost the power to keep pushing the stock. Although the stock of Paytm remained range-bound for the remainder of October and the entirety of November, the stock was still in a visible uptrend and almost all brokerages had set a target of over Rs 1,000.

However, December 2023 brought about the stock’s worst decline since its disappointing debut in November 2021. Paytm had announced that it would be cutting back on small-ticket risky loans while taking advantage of the growing demand for high-ticket loans that were less risky.

This resulted in multiple downgrades as the share tanked 19% in a single day! In the first half of December, the stock had fallen through two key support levels and lost 32% in less than two weeks!

The support at Rs 593.45 proved to be a strong support level for the stock as the stock took support from such level and reversed. The stock began a slow climb to its immediate resistance at Rs 701.40.

Although brokerages weren’t hopeful of Paytm reaching Rs 1,000, they still saw the stock well over Rs 800 as buying continued throughout January 2024 with the stock breaching and sustaining above its resistance at Rs 701.40.

However, February 2024 brought one of the stock’s worst declines. The Reserve Bank of India issued an order wherein it ordered Paytm Payments Bank Limited (PPBL), the banking arm of Paytm, to stop accepting deposits, allow withdrawals, and stop almost all banking activities due to ‘severe and persisting non-compliance’.

Brokerages saw a 30-40% decline in the company’s EBITDA as the stock hit three consecutive lower circuits, losing 43% in 3 days! The stock saw brief relief in the form of Morgan Stanley acquiring 0.8% in the stock, but the relief was short-lived as the decline continued.

What’s the future outlook??

Fundamentally, the company’s latest quarterly results were promising. The company’s revenues had grown 38% while quarterly losses had declined by a record 43%. Its GMV, loan disbursals, and overall metrics saw significant growth during the October to December 2023 quarter as the business outlook was positive.

However, the order by RBI, which halted all of PPBL’s operations, is a matter of concern for the company and its future outlook. According to Madhur Deora, the CFO of Paytm, the move could result in a hit of Rs 300-500 crores!! That is a major roadblock in Paytm’s goal of profitability and a threat to its business as a whole.

Technically, the stock was trading well below its 5, 20, 50, 100, and 200-day averages as its RSI was last at 23.01. Ordinarily, an RSI of under 30 indicates an Oversold condition where buyers flood in and buy the stock. However, Paytm’s decline is not an ordinary instance.

RBI has ordered PPBL to cease almost all its operations as a bank due to non-compliance while allowing customers to withdraw their funds, resulting in a massive wipeout of over $3 billion! This order led to the removal of Paytm from the list of authorized banks for FASTag service as the NHAI has now replaced Paytm with Axis, HDFC, ICICI, and 6 other banks to facilitate payments on 247 toll plazas.

Moreover, the order spooked several users as 42% of its Kirana store customers switched to other platforms like BharatPe and PhonePe! Its stock is set to suffer even more as major brokerages like Macquarie have slashed Paytm’s target prices by 20-60% and asked fresh investors to stay away!

However, there have been a few positive developments for Paytm:- 

  • The RBI recently updated Paytm’s deadline from 29th February to 15th March, giving the company another 15 days.
  • Shortly after the order, Paytm CEO Vijay Shekhar Sharma met with the Finance Minister and other RBI officials to resolve the issue.
  • Sharma has stated that the firm will shift to a ‘compliance-first, technology-second’ approach.
  • Although the ED was probing Paytm over FEMA violations, it was recently revealed that the ED found no such violations during the inquiry.
  • Paytm has partnered with Axis Bank and shifted its nodal accounts via escrow in order to ensure seamless merchant settlements.

Although Paytm has tanked almost 55% from its level in January 2024, the stock looks attractive in terms of valuation, and the above-mentioned factors are in favour of Paytm, buying into the stock currently would be a risky deal. While getting a 15-day extension is a big deal, the RBI has not given the fintech any other concessions.

In the meantime, other orders issued by the Central Bank remain unchanged: customers can use the funds in their accounts, but deposits, transfers, salary credits, and benefits receipts into the bank will not be allowed after the deadline while withdrawals will be allowed.

If Paytm is unable to build meaningful partnerships until its deadline, PPBL will be rendered moot and Paytm’s operations will take a sizeable hit. Its wallet services, which is the core of Paytm’s operations, will not be able to accept any inward transfers and Paytm will continue to lose market share. Paytm’s hope for survival is to migrate its wallet business to other banks to avoid major customer loss and prevent a long-term impact. 

Thus, although Paytm could see good gains due to its partnership with Axis Bank, only investors with a good risk appetite can open long positions in the company while others are advised to avoid the stock until the company’s recovery is certain.