Fintech
Because Paytm’s stock price just hit an all-time low
Paytm’s struggles continue. Is he ready to turn the corner? Photographer: Dhiraj Singh/Bloomberg
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On May 8, 2024, Paytm’s share price touched its lowest point of 317.45 Indian Rupees (INR), equivalent to 3.80 US dollars. The Indian fintech giant’s stock value has fallen by around 54% over the past year and by 79% since its November 2021 IPO.
While the Indian fintech market remains full of low-hanging fruit and Paytm still has time to get back on the right track, it is undeniable that one of the subcontinent’s most prominent fintech companies is facing some serious challenges. There are fundamental questions about the viability of its business model, especially with the demise of its payments bank and its inability to reach profitability after 15 years in business.
Loan problems
Ever since its investors became fearful of growth-focused development – and all the money being burned – Paytm has been quick to demonstrate that it has a viable business model that can ensure long-term profitability. An integral part of the company’s strategy is lending due to its high margins. While Paytm does not have the necessary licenses to directly provide loans to customers, it can do so through its network of banking partners.
Paytm’s problems with loans began in December, when Reserve Bank of India (RBI) more restrictive rules on consumer loans. At the time, Paytm said it would reduce loans below 50,000 rupees (about US$600), but increase its portfolio of high-value personal and commercial loans. Paytm said it expects a 40%-50% decline in the volume of loans issued through postpaid products, but minimal impact on revenue growth.
Analysts were not convinced. Goldman Sachs
Goldman Sachs
it said at the time that Paytm would not turn a profit until fiscal 2025-26. Earlier, the investment bank forecast that Paytm would be profitable in fiscal 2024-2025.
Meanwhile, earlier this week, Paytm denied reports suggesting that its lending partners had invoked loan guarantees provided by the company due to customer repayment defaults. Paytm said it does not offer loan guarantees to its lending partners, adding a declaration that “claims about invoking loan guarantees due to repayment defaults by our lender partners are inaccurate.”
Leadership reorganization
Another sign of ongoing challenges at Paytm is the company’s leadership shuffle. In a Statement of May 4th, the Indian fintech giant said it is expanding its leadership team to build “a large and profitable financial services and payments distribution business.” To that end, Paytm said its president and chief operating officer Bhavesh Gupta, who had overseen payments and lending, had resigned to move to a consulting position. The company said Gupta is taking a career break “for personal reasons.” It is unclear who will replace him.
Gupta didn’t mention whether the Paytm Payments Bank debacle had anything to do with his departure, but it’s hard to believe the two issues are unrelated. After all, he was responsible for the payments.
Meanwhile, Rakesh Singh was recently appointed as the head of Paytm Money Ltd, the wealth management arm of the fintech giant. Singh is a financial services industry veteran who previously served as CEO of the stock broking business at Fisdom and has held key management positions at ICICI Securities and Standard Chartered Bank.
There were many others of note management changes at Paytm in the last few months. In January, Surinder Chawla, MD and CEO of Paytm Payments Bank, resigned, while founder and CEO Vijay Shekhar Sharma stepped down as non-executive chairman of the bank’s board in February. In March, Praveen Sharma, Paytm’s senior vice president of business, left the company.
Upcoming earnings
Of course, there are still reasons to be optimistic about Paytm’s future. In the quarter ended December 2023, Paytm reported a operating profit – which the company defines as core earnings before the cost of employee stock options – for the fifth consecutive quarter. The figure was INR 2.19 billion, a significant improvement from INR 310 million in the same period last year. Consolidated revenue, meanwhile, increased 38% to 28.5 billion rupees, with payments business contributing 61% of the total.
However, Paytm released these numbers ahead of the RBI’s new lending restriction and the implosion of its payments bank. The company’s performance in the March quarter is likely to reflect these negative developments.
Paytm usually releases its earnings for the March quarter in May (last year it released them on May 5), although it has yet to announce a date for 2024. Given the travails of the past few months, investors will be looking some reasons to be optimistic about its path to profitability when it does.