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Paytm's Stock Plunges Further Amid Regulatory Woes: Challenges and Concerns Mount

On February 2, Paytm's stock continued its downward trend, plunging by another 20% to hit the lower circuit for the second consecutive day. The decline was attributed to regulatory actions taken by the Reserve Bank of India (RBI) against Paytm's lending business, which included restrictions on accepting new deposits and conducting credit transactions after February 29. Concerns among brokerages escalated following the RBI's directive, leading to a reduction in target prices for Paytm's stock.

Jefferies, for example, downgraded Paytm to 'underperform' from 'buy' and significantly lowered the target price from Rs 1,050 per share to Rs 500 per share. The brokerage highlighted potential impacts on Paytm's lending business if lending partners restrict operations due to operational or governance issues. Similarly, Macquarie adjusted its target price to Rs 650 per share while maintaining a 'neutral' stance, citing a lack of near-term solutions to Paytm's challenges in light of significant lapses identified by the RBI.

Bhavesh Gupta, the COO of Paytm, addressed concerns by stating that the company is engaging with lenders to clarify the impact of regulatory actions on its portfolio. Paytm estimates a worst-case scenario impact of Rs 300-500 crore on its annual EBITDA due to the regulatory restrictions imposed by the RBI. Additionally, fund managers and analysts anticipate a 5-15% decrease in earnings per share (EPS), heightening apprehensions as Paytm strives for profitability. Previously, there were expectations that the company would achieve breakeven on EBITDA by FY25.

Despite Paytm's efforts to address concerns and clarify the impact of regulatory actions, the ongoing challenges surrounding its lending business have contributed to investor skepticism and continued pressure on its stock price. The regulatory scrutiny and associated uncertainties have underscored the importance of effective governance and risk management practices for fintech companies operating in the Indian market. As Paytm navigates through these challenges, investors remain cautious about the company's near-term outlook and its ability to regain investor confidence amidst regulatory headwinds.


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