Morgan Stanley grabs opportunity; buys shares worth Rs 244Cr in Paytm after stock falls 36%

In a bold move, Morgan Stanley, via its affiliate Morgan Stanley Asia (Singapore) Pte, capitalized on the recent downturn in Paytm's stock by purchasing shares worth Rs 243.6 crore. 

According to bulk deal data available on NSE, The firm has acquired 50 lakh shares, or a 0.79% stake, at Rs 487.2 per share in the fintech giant One97 Communications, Paytm's parent company. 

The purchase was made through open market transactions on the National Stock Exchange (NSE) apparently on behalf of entities lacking an FPI license in India, utilizing Offshore Derivatives Instruments (ODIs) for the deal.

Paytm's ongoing challenges

The strategic acquisition comes at a time when Paytm's shares experienced a dramatic 36% drop over two sessions, primarily triggered by the Reserve Bank of India's strict action against Paytm Payments Bank.

RBI ordered Paytm Payments Bank Ltd (PPBL) to halt accepting new deposits or top-ups across customer accounts, wallets, FASTags, and other instruments post-February 29.

The decision came after the RBI identified potential violations by PPBL, including issues related to customer documentation and non-disclosure of material transactions.

RBI to cancel permit of PPBL?

While it's not yet confirmed, the Bloomberg report suggests that RBI is considering revoking PPBL's license due to these concerns. The report said may cancel the license as early as next month, once depositors are safeguarded.

However, the report also mentioned that RBI's consideration may change based on Paytm's representation. 

The regulatory scrutiny and subsequent market reaction have significantly impacted Paytm's valuation, with a loss of over $2 billion in market capitalization, bringing it down to nearly Rs 31,000 crore from its IPO valuation of $19 billion.

Brokerage firms warn about Paytm's future

According to analysts, The Reserve Bank of India's action on Paytm and reputation harm can have long-term effects on Paytm's overall business and profitability plans.

“RBI's actions directly impact the wallet business and profitability of merchant payments business, which can impact Ebitda (earnings before interest, taxes, depreciation and amortisation) by 20-30%. We see the impact being much larger due to reputational concerns around the group,” said Jefferies in its analyst commentary.

“Lending business (roughly 20% of revenues) can be significantly hit if lending partners cut back or limit their exposure. These drive us to cut FY25-26 EBITDA estimates by 45%, which will also delay profitability,” the investment banking firm added.

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