Paytm shares in focus after ED issues show cause notice over alleged FEMA violations

Shares of One 97 Communications (OCL), the parent company of Paytm, are expected to be in focus on Monday after the Enforcement Directorate (ED) issued a show cause notice over alleged violations of foreign exchange rules amounting to Rs 611 crore involving the company and two of its subsidiaries.

The notice, dated February 27, pertains to alleged contraventions of certain provisions of the Foreign Exchange Management Act (FEMA), Paytm disclosed in a filing with the BSE on Saturday. The company received the notice on Friday evening.

According to Paytm, the ED has identified non-compliance amounting to Rs 245 crore in OCL, Rs 345 crore in Little Internet, and Rs 20.9 crore in Nearbuy India. The alleged violations are linked to specific investment transactions in these companies.

OCL said it is seeking legal advice and taking appropriate steps to “resolve the matter in accordance with applicable laws and regulatory processes”.

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The Noida-headquartered firm said the compliance issues in the subsidiaries were from a time when they were not acquired by Paytm.Paytm acquired hyper local deals platforms Little Internet and Nearbuy in 2017 and merged the two brands. Little Internet was funded by Tiger Global Management and Elevation Capital. It had raised around $50 million in equity funding. Nearbuy, cofounded by Ankur Warikoo, was backed by Peak XV Partners (then Sequoia India) and had raised around $22 million in equity funding.This issue comes within weeks of the company settling a case with regards to certain regulatory violations with the Securities and Exchange Board of India for Rs 45 lakh.

The fintech platform saw its associate entity Paytm Payments Bank facing regulatory action from the Reserve Bank of India (RBI) early last year.

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Paytm shares target price

As per Trendlyne data, the average target price of the stock is Rs 871, which indicates an upside of 22% from the current market prices. The consensus recommendation from 17 analysts for the stock is a ‘Hold’.

Paytm shares performance

On Friday, Paytm shares closed at Rs 716.3, down 1.3% on the BSE. The stock has declined 27% year-to-date but gained 76% in the last one year. The company’s market capitalization stands at Rs 45,676 crore.

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