Shares of Indian payments firm Paytm tumbled 20% on Thursday, after a move by the country's financial regulator to halt business at associate Paytm Payments Bank sparked fears of hits to the company's profitability and reputation.
Paytm's stock fell to a six-week low of 609 rupees, erasing around $1.2 billion in value from the company, also known as One 97 Communications. The stock was at an exchange-imposed lower circuit.
The Reserve Bank of India (RBI) on Wednesday ordered Paytm Payments Bank to stop accepting fresh deposits in its accounts or popular wallets from March, raising worries that the move could erode revenue from the company's main payments business.
Paytm said it will take steps immediately to comply with the RBI's directions, and that it expects a worst-case impact of 3 billion-5 billion rupees ($36 million-$60 million) to its annual earnings before interest, tax, depreciation and amortisation (EBITDA).
One 97 will cease working with Paytm Payments Bank and start working only with other banks, it added.
Jefferies double downgraded Paytm's stock to "underperform" after the RBI's move and slashed its target price to 500 rupees from 1,050 rupees, saying regulatory and reputational issues can each impact 20%-30% of EBITDA.
The stock rose 20% in 2023 and the same amount this year up to Wednesday's close of 761.2 rupees.
The brokerage cut its EBITDA estimates, excluding employee stock ownership plan, for Paytm by 46% in fiscal 2025 and 44% for fiscal 2026, seeing a 7%-10% fall in payments revenues, a 17%-24% drop in lending revenues, and compression in payments margins.
"Paytm's business impact will largely come from reputational concerns arising from governance/compliance and hence, the path to resolution will be from stronger compliance with regulations and revoking of RBI measures," Jefferies said.
The RBI will also terminate the nodal accounts of both Paytm and Paytm Payments Services no later than Feb. 29. Paytm Payments Services is a wholly-owned subsidiary of Paytm. Nodal accounts are used to facilitate transactions.
One 97 is one of India's largest payment firms and counts SoftBank and Ant Financial among its early investors.
It holds 49% in Paytm Payments Bank, while CEO Vijay Shekhar Sharma holds the remaining 51%, according to the company's annual report for 2022-23. The bank received its license in 2015.