Paytm shares nosedive 20% on plans to scale down small-ticket postpaid loans

Shares of Paytm parent One97 Communications crashed 20% in early trade on Thursday as investors’ sentiment was dented after the payment solutions company revealed that it planned to slow down its small-ticket postpaid loans, while it aimed to expand high-ticket personal as well as merchant loans. According to analysts, the decision would impact the fintech major’s disbursement run-rate over the near term.

Paytm shares have been under stress for the last two weeks, with the share price falling nearly 30% in eight out of nine sessions. Extending losses for the fifth straight session, the fintech stock opened 8.4% lower at ₹744.95 against the previous closing price of ₹813.30 on the BSE. In the first hour of trade so far, the counter fell sharply by 20% to hit its lower circuit limit of ₹650.65 amid strong volume.

At the time of reporting, Paytm shares were trading 16% lower at ₹683 with a market capitalisation of ₹43,347 crore. On the volume front, 34.5 lakh shares changed hands over the counter as compared to two-week average of 2.8 lakh stocks.

The fintech major hit a 52-week high of ₹998.30 on October 20, 2023, and a 52-week low of ₹472 on December 23, 2022. In the last one year, the stock has risen 33% despite falling nearly 7% in the past six months, while it rose 27.5% in the calendar year 2023. Paytm shares have lost over 23% in a month.

Paytm shares were hammered today after the Vijay Shankar-led company shared an update and outlook on its loan distribution business. The company announced that it will further expand its business to offer higher ticket personal and merchant loans, while it will reduce small-ticket postpaid loans of less than ₹50,000. The decision came after the RBI's recent move to increase risk weights on unsecured lending. 

“On the back of recent macro development and regulatory guidance, in consultation with lending partners, in line with its continued focus on driving a healthy portfolio, the company has recalibrated the portfolio origination of less than ₹50,000, which is prominently the postpaid loan product and will now be a smaller part of its loan distribution business going forward,” Paytm said in a BSE filing on December 6.

As per the company, it will further expand its business to offer higher ticket personal and merchant loans, which would be targeted at lower risk and high credit worthy customers, in partnership with large banks and NBFCs.

Merchant loans, which are given to MSME as business loans, will continue to be a focus for Paytm. As these loans are given for business purposes to small merchants, they don’t get impacted by the recent regulatory guidance, it says, adding that it will continue to add banks and NBFCs as its lending partners for its loan distribution business.

"As the lending distribution business is maturing, we see newer opportunities of expansion to offer high-value personal and merchant loans. We will continue to focus on originating the high portfolio quality for our lending partners, along with strict adherence to risk and compliance. We have seen great scale and acceptance for our loan distribution business, so we believe this expansion will further aid us to grow the business,” says Paytm spokesperson.

Post the announcement, brokerage firm Jefferies cut its FY24-26 revenue estimates for Paytm by 3-10% and adjusted EBITDA estimates by 12-15%. The agency lowered its price target for the stock by over 19 percent to ₹1,050 while retaining its 'buy' call.

Goldman Sachs also slashed its FY24-26 revenue and adjusted EBITDA estimates for Paytm by up to 10% and 40%, respectively. The foreign brokerage downgraded the stock to a 'neutral' rating with a price target of ₹840.

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