Digital financial solutions provider Paytm has been passing through a tough year so far and the issues don’t look like they are going to disappear easily due to the latest disclosures. The corporation informs that Megios Singh, the MD&CEO of Paytm Payments Bank, has resigned. Meanwhile, the stock of Paytm was resumed with an ‘underperform’ rating by the brokerage firm Bank of America. Now, this sentence needs to be elaborated on to understand its depth.
Chawal’s departure from the Paytm Payment Bank is a big demolition which takes place at the helm of the bank. He had been the official leader through the first three years. However, the company stressed it was a personal decision by Chawla to look for more opportunities at another organization, a departure that was timely given that the business was entering its most critical phase. Also, the banking subdivision of the Paytm group suffered limitations designated by the RBI in about March 2017 owing to some particular matters.
The central bank’s action in January had banned the bank from taking on new customers or offering new services. It was a major setback that dented Paytm’s growth plans. Though some curbs were lifted later, the bank is still under the RBI’s watch. Losing an experienced leader like Chawla in such a phase could add to Paytm’s woes. The company will need to find a strong replacement to steer the bank.
In another negative, Bank of America has resumed coverage on Paytm stock with an ‘underperform’ rating. This means the brokerage expects the stock to underperform the broader market or its sector peers. BofA’s target price of Rs. 400 also points to limited upside potential.
This comes after the brokerage had suspended coverage on Paytm last year when the stock crashed below its IPO price after listing. Its bearish stance reflects continued concerns around Paytm’s business model, profitability and competitive landscape. Paytm is still struggling to convince investors of its long term potential.
Unsurprisingly, news of Chawla’s exit and BofA’s underperform rating took a toll on Paytm’s share price. The stock fell nearly 3% on the day to close at Rs. 392.9 per share. It has now corrected over 60% from its IPO price. Paytm’s weak performance and losses continue to weigh on investor sentiment. Any negative development is likely to impact the already battered stock.
The road ahead remains bumpy for Paytm as it works to reassure regulators, enhance offerings and improve financials. Strong leadership will be crucial to steer the payments bank business at this critical juncture. It also needs to win back analysts’ confidence for its valuation to recover. But with competition intensifying, turning around fortunes may not be easy. Only time will tell if Paytm can stage a successful comeback.
