Shares of Paytm’s parent company rose up to 4 per cent in the early morning trading on February 27. This boost came following an announcement from Paytm Payments Bank or PPBL regarding the reconstitution of its board.
Paytm founder Vijay Shekhar Sharma stepped down as part-time non-executive chairman of PPBL. Consequently, the bank’s board underwent a restructuring process. The new board members include Srinivasan Sridhar, Debendranath Sarangi, Ashok Kumar Garg, and Rajni Sekhri Sibal, bringing in vast experience from the banking and administrative sectors.
One 97 Communications, Paytm’s parent company, expressed support for PPBL’s decision to transition to a board comprising independent and executive directors, thus removing its nominee from the board. The company stated PPBL will begin the process of appointing a new chairman.
Moving forward, the reconstituted board will lead the future business endeavours of the company, indicating a significant change in leadership and governance within PPBL.
Implications for Paytm Investors
Global brokerage firm Macquarie has issued an ‘underperform’ rating on Paytm’s stock with a target price of Rs 275, indicating a potential downside of 36 per cent from the last traded price. The brokerage highlighted concerns regarding regulatory scrutiny following Vijay Shekhar Sharma’s resignation from PPBL’s board, as he owns a majority stake in the bank.
Macquarie further stated regulatory authorities, particularly the Reserve Bank of India (RBI), might scrutinise any related-party transactions between Paytm and PPBL. Vijay Shekhar Sharma’s decision to relinquish control of PPBL could potentially improve the profitability of Paytm in the long run.
In the fiscal year 2023, PPBL reported a consolidated profit of Rs 2.44 crore. However, the RBI recently barred PPBL from accepting deposits and credits from customers post-March 15 due to persistent non-compliance and supervisory concerns.
Market Analyst Insights
Independent market analyst Ambareesh Baliga views Vijay Shekhar Sharma’s resignation from PPBL as a positive development. However, he cautions against expecting an immediate bullish trend in Paytm’s stock. Baliga anticipates a potential price ceiling around Rs 525 or Rs 550, pending the company’s ability to regain stability and growth under the revised leadership.
Baliga asserted while the recent reshuffle may mitigate disruption, the road to profitability for Paytm remains uncertain. Regulatory challenges, including the RBI’s restrictions on PPBL’s operations, pose ongoing hurdles for the company’s financial performance and market outlook.
