Jefferies India dropped its rating on Paytm making it the first major brokerage to drop its rating on the company after it was hit by regulatory action by the Reserve Bank of India (RBI). Jefferies said that is sees a 28 percent year-on-year decline in Paytm's revenues- moving to 'not rated' from 'underperform'. This comes as RBI's FAQs reiterated wind-up of PPBL business (deposit A/Cs, wallets etc) while platforms outside PPBL (Paytm app, UPI transfers, merchant payment & loan originations) can go on.
"In case of no incremental regulatory clampdown, there could be multiple scenarios for the business depending on user/merchant retention. We see positive and negative risks arising from user/merchant retention, revenue traction and cost-controls. On the basis of merchant/user attrition to the tune of 10-30 percent and a hit to net revenues (adj. for payments interchange) of 20-45 percent, valuation could vary widely. News on regulatory actions on other pending issues is still incoming" Jefferies said in its note.
Read more: Paytm share price today: What's behind 5% gains
What has RBI said on Paytm crisis?
RBI extended Paytm account usage till March 15 but this does not mean any relief for wallet/FASTag transactions. Merchants using Paytm QR/Soundbox linked to another bank account can continue beyond March 15, the central bank said.
"Without a banking license, Paytm's business model will now become similar to pure payment service providers like PhonePe, GPay, Pine Labs, etc. Paytm's focus will now move to ensure customer/merchant retention, and we believe it will dip into its ₹8,500 crore cash reserves for spending on retaining users. While app customers may be retained by increasing cashbacks/discounts (Rs400 crore in FY24E), merchants using PAYTM devices can be provided discounts (or free usage) on monthly subscription rentals ( ₹1,200 crore income in FY24E)," Jefferies said.
{{/usCountry}}"Without a banking license, Paytm's business model will now become similar to pure payment service providers like PhonePe, GPay, Pine Labs, etc. Paytm's focus will now move to ensure customer/merchant retention, and we believe it will dip into its ₹8,500 crore cash reserves for spending on retaining users. While app customers may be retained by increasing cashbacks/discounts (Rs400 crore in FY24E), merchants using PAYTM devices can be provided discounts (or free usage) on monthly subscription rentals ( ₹1,200 crore income in FY24E)," Jefferies said.
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