Paytm: Jefferies drops rating on fintech major; here's what other brokerages say

Foreign brokerage Jefferies has dropped coverage on One 97 Communications Ltd (Paytm), saying it would wait until the news flow settles down around the fintech major. Paytm is “not rated”, it suggested a couple of weeks after slashing rating on the Paytm stock to 'underperform'. This comes as Bernstein, another brokerage, suggested an 'outperform; rating with a target price of Rs 600 on the stock while Citi suggested a 'sell' but with a target price of Rs 550.

Keeping in view the interest of customers including merchants of Paytm Payments Bank, who may require a little more time to make alternative arrangements and the larger public interest, the RBI gave extension to the payments bank till March 15.  A report suggested  that the Enforcement Directorate (ED) did not find any violation under the Foreign Exchange Management Act (FEMA) during its recent inquiry into Paytm Payments Bank transactions. But the Reserve Bank of India (RBI) can take action against certain other instances of alleged non-compliance, a report in The Hindu said.

Morgan Stanley on Monday said while the RBI extended the timeline for the effective ban on banking/wallet related operations to March 15, there was no change made to  timeline for nodal accounts of Paytm and Paytm Payments Services with Paytm Payments Bank. The foreign brokerage noted that the nodal accounts are to be terminated by February 29, with settlements can be completed by mid-March. This brokerage has 'equalweight' rating on the stock with a target of Rs 555.

Vijit Jain, an analyst at Citi said given investor concerns/bank comments earlier, new partnerships would be significant positives for ongoing business.
 

"RBI hinted at merchants being able to use Paytm QR code/Soundbox or POS terminal as long as it's linked to a non-PPBL bank account. This is a major positive though we would have liked to see more details such as: What merchants need to do to continue using these payment solutions, if any (e.g. a re-KYC). What Paytm needs to do to enable these payments and if it's permitted to do so? (e.g. Switch over Nodal accounts, Partner with another bank as PSP etc). The details were probably not provided as they deal with One 97 entity and potentially areas that NPCI governs but given these were supposed to be released in consultation with NPCI and NHAI, more details would have been helpful," Bernstein said.

Bernstein however suggested that there was no explicit exception provided for a bulk transfer of wallets/Fastags to another bank and hence these products will cease to exist — this was a largely expected negative. However, transfer of balances to another wallet is permitted," Bernstein said.  The foreign brokerage said that the central bank's actions appear to be limited to Paytm Payments Bank and not intended at disrupting the UPI payments and other functions of Paytm. "We find this to be incrementally positive though still short on the finer details," it said.

Meanwhile, here is an unrelated X post (Twitter) gaining traction:

Saw a crazy research rating of a company from the sell side. After having a rating on the company for a long time, the broker has today changed it to
"You figure it out" or "NR - not rated" till there is clarity.

This shows the importance given to the rating per se rather than…

— Samir Arora (@Iamsamirarora) February 19, 2024

 

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