Paytm share price falls 18pc amid plans to scale back post-paid loans

Indian digital payment giant Paytm witnessed a staggering 18 per cent decline in its share price on Thursday. This market turmoil followed the company’s announcement of strategic plans to slow down its small-ticket post-paid loans.  

According to media reports, Paytm aims to divert its focus towards high-ticket personal loans and merchant loans, a move that has raised concerns among investors and prompted several brokerages to revise their revenue estimates for the company.

At 12:42 pm on the National Stock Exchange (NSE), Paytm’s share price plummeted to 666.50 rupees ($8), marking an 18 percent drop. The stock had earlier hit a 20 per cent lower circuit in early trade, triggering an increase in trading volume. Approximately 3 crore shares changed hands, a stark contrast to the one-month daily traded average of 50 lakh shares.  

During an analyst meet, Paytm revealed its intention to slash post-paid loans by half. The company assured stakeholders that this move would have minimal impact on margins or revenue, as post-paid loans had the lowest take rate. However, market experts expressed reservations about the decision, emphasising that it might lead to a reduction in Paytm’s disbursement run rate over the near term.

Jefferies, a leading brokerage firm, attributed Paytm’s decision to recalibrate its ‘Buy now pay later’ (BNPL) business to the recent regulatory changes by the Reserve Bank of India (RBI) affecting unsecured lending. The firm predicted a 50 per cent reduction in BNPL disbursals over the next 3-4 months.  

Despite Paytm’s plans to offset this decline through high-ticket personal loans and merchant loans, Jefferies expressed concerns about the unexpected tightening in the BNPL business. Consequently, Jefferies revised its revenue estimates for Paytm for FY24-26 by 3-10 per cent and adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) estimates by 12-15 per cent, along with a downward revision of the stock’s price target by over 19 per cent to Rs 1,050 ($12.6).

Goldman Sachs took a cautious stance, downgrading Paytm’s stock to a ‘neutral’ rating and setting a price target of Rs 840 ($10.08). The brokerage firm also lowered its revenue and adjusted EBITDA estimates for FY24-25 by up to 10 per cent and 40 per cent, respectively.  

Similarly, Morgan Stanley, maintaining an ‘equal weight’ call on the stock, predicted a decline in Paytm’s disbursement run rate due to the decision to scale down low-ticket post-paid lending. The brokerage assigned a price target of Rs 830 ($9.96).

While Motilal Oswal Financial Services acknowledged Paytm’s efforts to adapt, it expressed reservations about the long-term impact on low-ticket unsecured loans. The firm trimmed its FY24/FY25 disbursement estimates by 15 per cent-18 per cent, resulting in an 11-16 per cent cut in adjusted EBITDA forecasts for FY24-25. Despite keeping a watchful eye on the situation, the brokerage highlighted uncertainties regarding the longevity of these measures and the outlook for low-ticket unsecured loans.

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