Shares of One97 Communications Ltd, the parent company of digital payment giant Paytm, tumbled 20 per cent and triggered a lower circuit during early trade on Thursday.
This downturn follows the company’s announcement of a strategic shift away from small-ticket loans and a restructuring of its “Buy now, pay later” (BNPL) business to focus on higher-ticket loans.
After hitting the 20 per cent lower circuit in early trade, Paytm’s shares were down 18.10 per cent, reaching Rs 65.90 around 10:50 am. This marks the worst day for the company since its listing.
The sharp decline ensued after Paytm announced its decision to reduce exposure to small-ticket loans, drawing criticism from multiple analysts.
The move is anticipated to impact the total loan originations through the platform, as the particular segment accounts for over 50 per cent of total disbursements.
Here’s a snapshot of what various brokerages are saying about Paytm’s recent strategic shift:
Downgraded Paytm to ‘neutral’ from ‘overweight,’ citing concerns about unsecured credit potentially slowing down revenue/EBITDA.
Reduced the target price from Rs 1,200 to Rs 900, implying a downside of 10.70 per cent.
Cut FY24–26 revenue and adjusted EBITDA estimates by 4–9 per cent and 7–34 per cent respectively due to a slower lending growth rate.
Remains cautious about success in high-ticket loans and the ability to rationalise indirect costs.
Motilal Oswal Financial Services
Maintains a ‘buy’ rating with a target price of Rs 1,025, implying an upside of 26 per cent.
Expects the move away from small-ticket-size BNPL loans to impact total loan originations but anticipates a pick-up in higher-ticket personal loans to offset the impact.
Trims FY24/FY25 disbursement estimates by 15-18 per cent reflecting the current developments.
Notes Paytm’s denial of speculation about losing out lending partners, with plans to integrate one large bank and two large NBFCs by March 2024 and June 2024. Paytm currently has seven NBFC partners for loan distribution.
Downgrades Paytm to “neutral” from the earlier rating of “buy” and slashes the price target to Rs 840 from Rs 1,250.
Expects Paytm’s net income to turn positive in financial year 2026, compared to its earlier projection of 2025.
Lowers FY24–26 revenue and adjusted EBITDA estimates by 10 per cent and 40 per cent respectively on sharply lower lending estimates.
Reduces FY25 disbursal growth estimates to 0 per cent year-on-year from 37 per cent earlier.
Maintains a “buy” recommendation but significantly cuts the price target to Rs 1,050 from Rs 1,300.
Expects BNPL disbursals to halve in the next 3-4 months, offsetting with scaling up high-ticket personal and merchant loans.
Cuts FY24–26 revenue estimates by 3–10 per cent, leading to an adjusted EBITDA estimate cut of 12–15 per cent.
Views Paytm’s scale-back of small-ticket loans and BNPL recalibration negatively.
Cuts the price target to Rs 950 from the earlier Rs 1,100 while maintaining an outperform stance.
Believes an acceleration in personal loans could limit immediate revenue and EBITDA impact.
Maintains an Equal-Weight rating with a price target of Rs 830.
Expects Paytm’s disbursements run-rate to drop in the near term but anticipates limited earnings impact as higher-ticket loans and other financial businesses scale up.
Notes a 40–50 per cent scaling down of monthly disbursements in the small-ticket ‘postpaid’ (pay-later) loan product.
Highlights the decision’s prudential nature, considering RBI’s recent regulatory actions.
Highlights a strong portfolio performance with a downward revision of expected credit loss for the ‘postpaid’ product.
Revises Paytm’s FY24E EBITDA loss to Rs 680 crore and FY25E EBITDA to Rs 470 crore.
Cuts the target price to Rs 1,120, expecting a negative stock price reaction until growth trends stabilise.