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Analyzing One97 Communications Ltd.’s Response to Regulatory Scrutiny

9th February, 2024| By Business Desk
Vijay Shekhar Sharma
Vijay Shekhar Sharma | Credit: Flickr
  • One97 Communications Ltd., the parent company of Paytm, faced a significant decline in its stock value over two consecutive trading sessions due to regulatory actions by the Reserve Bank of India (RBI) against Paytm Payments Bank.
  • SoftBank Group Corp. divested a majority of its stake in Paytm prior to the regulatory measures, exacerbating the situation.
  • Manju Agarwal, an Independent Director of Paytm Payments Bank, resigned, citing concerns about the bank’s future viability following the RBI’s restrictions.
  • Paytm E-commerce rebranded to Pai Platforms and acquired Bitsila, a seller platform on the Open Network for Digital Commerce (ONDC), in an effort to strengthen its presence in the online retail sector.
  • Despite varied analyst perspectives, investors are advised to exercise caution due to the ongoing regulatory scrutiny and market volatility, with experts recommending against initiating new positions in One97 Communications Ltd.

Shares of One97 Communications Ltd., the parent company of Paytm, experienced a significant downturn over the course of two consecutive trading sessions, primarily triggered by regulatory actions taken by the Reserve Bank of India (RBI) against Paytm Payments Bank. The situation escalated as SoftBank Group Corp. divested a majority of its stake in Paytm prior to the regulatory measures, as confirmed by SoftBank Vision Fund Executive Managing Partner Navneet Govil in a statement to Bloomberg.

In a notable development, Manju Agarwal, an Independent Director and board member of Paytm Payments Bank, tendered her resignation effective from February 1, as reported exclusively by NDTV Profit. Sources privy to the matter revealed to NDTV Profit that Agarwal’s resignation was motivated by a lack of confidence in the bank’s future viability following the RBI’s restrictions.

Further compounding the challenges faced by Paytm Payments Bank, the Employees Provident Fund Organisation announced its decision to cease processing claims associated with accounts held at the bank starting from February 23, aligning with the directives issued by the RBI.

Meanwhile, Paytm E-commerce underwent a rebranding, now operating under the name Pai Platforms. Additionally, it made strategic moves in the market by acquiring Bitsila, a prominent seller platform on the Open Network for Digital Commerce (ONDC). This acquisition positions Pai Platforms to enhance its presence in the online retail sector, particularly supporting renowned brands like McDonald’s and BigBasket on the ONDC platform.

The adverse impact on One97 Communications Ltd. intensified following remarks made by RBI Deputy Governor Swaminathan Janakiraman during the monetary policy meeting, where he emphasized the necessity for supervisory measures on Paytm Payments Bank to safeguard consumer interests. This led to a steep decline in the company’s stock, which plummeted by 10% and triggered lower circuit limits on trading.

The stock performance of One97 Communications Ltd. further deteriorated, reaching its lowest point since February 6, with a decline of 8.21%, before marginally recovering to trade 6.41% lower. This contrasted sharply with a marginal gain of 0.1% observed in the broader NSE Nifty 50 index.

Over the past year, the stock has witnessed a substantial decline, with a cumulative decrease of 29.95%. Notably, trading volumes exceeded the 30-day average, indicating heightened market activity. The relative strength index (RSI) stood at 24.60, signaling potential overselling of the stock.

Analysts tracking the company’s performance offer varied perspectives, with six maintaining a ‘buy’ rating, four suggesting a ‘hold’, and five recommending a ‘sell’. According to Bloomberg data, the consensus among analysts implies a potential upside of 73.3% based on the average 12-month price target.

The challenges faced by One97 Communications Ltd. underscore the volatility and regulatory scrutiny inherent in the fintech sector. Investors are advised to exercise caution and consider alternative investment opportunities, as indicated by experts such as Chandan Taparia from Motilal Oswal Financial Services, who cautioned against initiating new positions in the stock amidst ongoing uncertainties.