India’s hottest startup, sees its stock fall 80% since market debut

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RBI ‘ban’ on Paytm Payments Bank: Stock trades nearly 80% lower than the IPO price

India’s hottest startup, sees its stock fall 80% since market debut

In the realm of Indian startups, Paytm, once ablaze with prominence, has witnessed a remarkable descent in the trading sphere since the prior week, marking an extended plummet that has depleted approximately 80% of its valuation since its grand entrance into the public domain via India’s most substantial Initial Public Offering in 2021.

The shares of this widely favored digital payments entity have tumbled by the maximum permissible limit per diem in Mumbai for a trifecta of consecutive days leading up to Monday, notwithstanding the surging trajectory of India’s stock exchanges, which have scaled unprecedented peaks. As of the close of Wednesday’s trading session, Paytm has dwindled by 42%, with a year-to-date decline hovering close to 32%.

Since its calamitous debut in the market scape in November 2021, the company has grappled with adversity, failing to persuade stakeholders of its potential profitability amidst escalating rivalry from domestic contenders and tech behemoths hailing from the United States.

regulatory scrutiny, Paytm encountered a tumultuous situation — a couple of years prior, the central banking authority imposed restrictions on its financial division, prohibiting the acquisition of fresh clientele.

Presently, the valuation of Paytm’s stocks stands at a mere 438 rupees (approximately $5) per share. The recent plummet spanning two days has obliterated a staggering $2.4 billion in market capitalization alone, reducing the company’s net worth to a mere $3.3 billion.

The most recent nosedive occurred subsequent to further regulatory interventions by India’s central bank.

The Reserve Bank of India (RBI) issued directives on Wednesday, mandating the cessation of deposit-taking services by Paytm Payments Bank, among other essential functionalities, citing “persistent non-compliance.”

Since the unexpected announcement, which caught the Indian tech community off guard, Paytm has been mobilizing resources to address concerns raised by investors and its expansive customer base exceeding 300 million.

However, its reassurance regarding the expeditious adoption of regulatory directives, along with a teleconference convened post-trading hours on Thursday, failed to assuage the ongoing turmoil.

The RBI’s directive poses a “reputational hazard to Paytm’s overall business and raises uncertainties regarding the trajectory of its future business performance,” remarked Manish Chowdhury, head of research at StoxBox brokerage.

Upon its inception in 2017, Paytm inaugurated its payments bank in collaboration with its progenitor, Vijay Shekhar Sharma. Initially, it was vested with the capacity to receive deposits sans the authority to extend loans to its clientele.

During the recent discourse, Sharma articulated that the regulatory intervention from the central bank merely serves as an impediment, emphasizing Paytm’s prospective collaboration solely with other financial institutions.

Furthermore, the enterprise refuted media speculations regarding an ongoing investigation into purported money laundering activities by India’s financial regulatory body.

In a submission on Sunday, Paytm asserted, “Neither the corporation nor its founder and CEO are the subject of an inquiry by the Enforcement Directorate,” clarifying its unwavering cooperation with authorities in previous investigations into select merchants/users on its platforms.

The proliferation of Paytm’s application to a ubiquitous status in 2016 coincided with the unprecedented decision by Indian Prime Minister Narendra Modi to invalidate the nation’s two predominant currency denominations, constituting approximately 86% of the monetary circulation at the time, in a concerted effort to combat tax evasion and illicit accumulation of wealth.

The decision wrought considerable upheaval within the economic landscape, yet it catalyzed Paytm’s expansion at an astounding pace: The corporation garnered 10 million fresh patrons in the span of a lunar cycle. This accomplishment propelled us into the annals of national legend.

Amidst the financial realm, the stock of Paytm has encountered a notable descent, plunging to the depths of a 20% decremental threshold for a duration encompassing two successive sessions of trade. This regression ensued subsequent to the decree pronounced by the Reserve Bank of India (RBI), effectively prohibiting Paytm Payments Bank from executing specific operations subsequent to the revelation of a scrutinized system audit report and a consequent assessment of compliance ascertained by external auditors.

In a formal communique issued on Wednesday, the Reserve Bank of India directed Paytm Payments Bank Ltd. (PPBL) to halt all fresh credit and deposit activities, top-ups, financial transfers, and analogous banking undertakings beyond the cessation date of February 29 in this current annum.

The recent setback experienced by the corporation constituted a significant setback, given the considerable magnitude of the payment bank’s operations, which currently oversees in excess of 330 million wallet accounts, thereby serving as a pivotal component within the Paytm ecosystem. The imposition of stringent regulations is expected to impede Paytm’s capacity to maintain its clientele, as indicated by industry experts.

The regulatory maneuver triggered a substantial downturn, indicating one of the most formidable epochs for Paytm since its debut in November 2021. At its current trading value of ₹487.20 per share, the equity is experiencing a markdown of 77.34% in comparison to its initial offering price of ₹2,150 per share, presenting hurdles for stakeholders who entered the market during the initial public offering and have retained their positions thus far.

India’s hottest startup, sees its stock fall 80% since market debut

India’s hottest startup, sees its stock fall 80% since market debut

At present levels, the shares of One 97 Communications, the parent entity of Paytm, are 11% distant from reaching a historic nadir of ₹438 per share, reached in November 2022.

In the past year, the trajectory of X’s stocks has been tumultuous, with a recent significant downturn prompting brokerage firms to revise downward their assessments of Paytm shares, indicating further challenges ahead. Against this backdrop, the company witnessed a decline in its market capitalization from ₹48,247 crore to ₹30,888 crore (factoring in Wednesday’s closing value of ₹761 per share).

Amidst the most recent BSE equity possession records, investment pools embraced roughly 3,16,64,315 shares, composing a 4.99% interest in Paytm toward the conclusion of the December term of FY24. The dramatic plummet in the stock has precipitated a ₹869 crore deficit for the investment pools.

The predominant proprietorship of the enterprise rests with alien institutional investors (FIIs), holding a stake of over 63.7%, and individual investors, comprising 30.2%. FIIs and individual investors have suffered losses of ₹11,000 crore and ₹5,332 crore, correspondingly.

A remarkable turn of events occurred just a mere three weeks prior to the imposition of restrictions by the Reserve Bank of India on Paytm. SVF India Holdings, an entity under the umbrella of SoftBank, undertook open market transactions, divesting itself of 12,706,807 equity shares of Paytm. This maneuver resulted in a reduction of its ownership stake to a mere 5.01%.

Amidst recent quarters, Softbank has been gradually diminishing its interest in the corporation. Back in November of 2023, BH International, spearheaded by Warren Buffett’s Berkshire Hathaway, divested its complete 2.46% ownership in the entity, incurring a deficit of ₹507 crore from its initial investment of five years prior.

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