The Paytm issue caused One 97’s stock price to plummet, sparking a ‘sell’ call from analysts.
Shares of One 97 Communications Ltd. continued to plunge even after JP Morgan advised investors to sell after the bank used for its popular Paytm mobile payments service was effectively shut down by banking regulators.
The Reserve Bank of India’s action against PayTM Payments Bank Ltd. announced on Wednesday includes not allowing additional deposits, credit transactions, utilization of customers’ balances or banking services.
Additionally, node accounts or special brokerage accounts used by businesses from One 97 and Paytm Payments Services Ltd. will be terminated “at the earliest” by February 29.
Paytm boasts of being the “most popular” platform for money transfers, recharges and other online payments in India.
The RBI’s action comes after an investigation found “persistent non-compliance by the bank and ongoing significant supervisory concerns”.
One 97’s stock 543396,
It slumped 36% in Indian trading over the past two days, closing at a 15-month low on Friday after the RBI’s action was announced. The stock is down 37.3% over the past six months, while iShares MSCI India ETF INDA is up 14.7%.
One 97’s stock price plummeted after RBI took action against banks used by Paytm.
FactSet, MarketWatch
JP Morgan analyst Ankur Rudra downgraded the stock from Neutral to Underweight and lowered his price target by 33% to INR600.
Rudra’s concern is that the order will have a “significant impact” on Paytm’s payments business, which accounts for 59% of its revenue.
“We do not believe this order is the end of the road for Paytm, but it will have a material impact on near-term growth, profitability and force another turnaround and restore credibility to the durability of the business,” Rudra wrote in a released note. To customers on February 1st
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One 97 on Thursday said it is already collaborating with various banks as well as PayTM Payments Bank and will now “accelerate” its plans for further collaborations with other banks following the RBI’s order.
“Going forward, (the company) will only work with banks other than Paytm Payments Bank Limited. The next step in OCL’s journey is to continue to expand its payments and financial services business only through partnerships with other banks,” One 97 said in a statement.
JP Morgan’s Rudra said Paytm “needs to be proven” that it can maintain its payment margins while shifting its business to other banks.
“We expect this to erode Paytm’s consumer brand confidence which could lead to loss of market share in segments where Paytm has dominated in the past,” Rudra wrote.
