Discover the latest bombshell in the fintech world as Jefferies, a leading brokerage firm, unexpectedly cuts coverage on Paytm amid regulatory troubles. Uncover the implications of this drastic move and what it means for investors and the future of India’s largest payment service provider.
Jefferies Drops Coverage on Paytm
Jefferies, a prominent foreign brokerage firm, has made a significant move by ceasing its coverage on One 97 Communications Ltd., the company behind Paytm. The decision comes amidst ongoing turbulence surrounding the struggling Indian fintech giant, with Jefferies opting to wait until the situation stabilizes before reassessing its stance.
The investment bank has taken the step of downgrading Paytm’s stock to “not rated,” a move that follows its previous downgrade to “underperform.” This downgrade occurred after the Reserve Bank of India (RBI) issued an order last month, instructing Paytm Payments Bank to suspend its key operations due to non-compliance issues.
With the fintech giant losing its banking license, its business model now resembles that of other payment service providers such as PhonePe, GPay, and Pine Labs. The investment brokerage firm predicts that Paytm will focus on retaining customers and merchants, likely utilizing a portion of its substantial Rs 8,500 crore cash reserves for this purpose.
Must Read
Regulatory Extension and Potential Scenarios
Despite the regulatory hurdles, the RBI recently granted PPBL an extension to wind down its operations. The new deadline allows it until March 15 to stop accepting new deposits, compared to the previous deadline of February 29.
Jefferies anticipates strategies such as increasing cashback and discounts for app users and offering discounts or free usage of the digital wallet’s devices for merchants. These measures aim to maintain user and merchant retention and are estimated to incur significant expenses, including Rs 400 crore for app customer retention and Rs 1,200 crore for merchant subscription discounts in FY24E.
The investment firm highlights the uncertainty surrounding the fintech company’s future, citing potential positive and negative outcomes based on user and merchant retention rates, revenue traction, and cost controls. The firm suggests that valuation could vary significantly based on various scenarios, including different levels of user and merchant attrition and the resulting impact on net revenues.
Partnership with Axis Bank
In a strategic move to sustain its merchant payment settlement operations, PPBL has forged a partnership with Axis Bank. This collaboration aims to replace PPBL and provides the company with an opportunity to continue its business operations despite the regulatory challenges.
As the fintech giant navigates through a period of regulatory uncertainty and operational challenges, the decision by the investment firm to suspend coverage reflects the complex landscape the company finds itself. With regulatory actions still pending and the company’s future direction uncertain, stakeholders await further developments that could shape its trajectory in the coming months.
Bhaarat Bulletin’s Shikha Rai, Bimal Dev, and Jefferies Brokerage have contributed to the above report
Also Read