On May 8, 2024 Paytm’s share price hit a nadir of 317.45 Indian rupees (INR), equivalent to US$3.80. The Indian fintech giant’s stock has fallen about 54% in value over the past year and 79% since its November 2021 IPO.
While India’s 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 faces some serious challenges. Fundamental questions exist about the viability of its business model, especially with the demise of its payments bank and its inability to reach profitability after 15 years of operation.
Lending Travails
Ever since its investors got cold feet about growth-first development – and all the cash that was being burned – Paytm has been scrambling to prove it has a viable business model that in the long term can ensure profitability. Integral to the company’s strategy is lending because of its high margins. While Paytm does not have the requisite licenses to directly provide loans to customers, it can do so through its network of banking partners.
Paytm’s trouble with loans started in December when the Reserve Bank of India (RBI) tightened rules on consumer lending. At the time, Paytm said it would reduce sub-50,000-rupee (about US$600) loans but increase its portfolio of high-ticket personal and commercial loans. Paytm said that it expected a 40%-50% drop in volume of loans it issues through post-paid product, but a minimal impact on revenue growth.
Analysts were not convinced. Goldman Sachs
Goldman Sachs
said at the time that Paytm would not swing to a profit until the 2025-26 fiscal year. Previously, the investment bank expected Paytm would be profitable in the 2024-2025 fiscal year.
Meanwhile, earlier this week, Paytm refuted reports that suggesting that its lending partners had invoked loan guarantees provided by the company due to customer repayment defaults. Paytm said that it does not offer loan guarantees to its lending partners, adding in a statement that “claims about invoking loan guarantees due to repayment defaults by our partnered lenders are inaccurate.”
Leadership Shake-Up
Another sign of the ongoing challenges at Paytm is the shuffling of the company’s leadership. In a May 4 statement, the Indian fintech giant said that it is expanding its leadership team to build “a large and profitable payment and financial services distribution business.” To that end, Paytm said that that its president and chief operating officer Bhavesh Gupta, who had been overseeing payments and lending, had resigned to move to an advisory position. The company said Gupta is taking a career break “for personal reasons.” It is unclear who will replace him.
Gupta has not mentioned if the debacle with Paytm Payments Bank had anything to do with his departure, but it is hard to believe the two issues are unrelated. After all, he was in charge of payments.
Meanwhile, Rakesh Singh was recently appointed as head of Paytm Money Ltd, the fintech giant’s wealth management subsidiary. Singh is a financial services sector veteran who previously served as CEO of the stock broking business at Fisdom and has held key management positions with ICICI Securities and Standard Chartered Bank.
There have been several other notable management changes at Paytm in recent months. In January, Paytm Payments Bank’s MD and CEO Surinder Chawla resigned, while founder and CEO Vijay Shekhar Sharma stepped down as the non-executive chairman of the bank’s board in February. In March, Paytm’s senior vice president of business Praveen Sharma left the company.
Upcoming Earnings
To be sure, there are still reasons to be optimistic about Paytm’s future. In quarter ended Dec. 2023, Paytm posted an operating profit – which the company defines as core profit before cost of employee stock options – for the fifth consecutive quarter. The figure was 2.19 billion INR, a significant improvement over 310 million INR during the same period a year earlier. Consolidated revenue, meanwhile, increased 38% to 28.5 billion rupees, with its payments business contributing 61% to the total.
However, Paytm posted those numbers before the RBI’s new lending restriction and the implosion of its payments bank. It is likely that the company’s performance in the March quarter will reflect these negative developments.
Paytm usually reports its earnings for the March quarter in May (last year it reported them on May 5), though it has yet to announce a date for 2024. Given the travails of recent months, investors will be looking for some reasons to be optimistic about its path to profitability when it does.
