Paytm Shares Crash 18% As Plan To Trim Small Loans Business Prompts Rating Downgrades

It was a bloodbath day for the shares of Paytm today in the stock market, as they crashed nearly 20% in a single day on December 7.

Why Did Paytm Shares Crash Today?

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Paytm shares bled heavily today after the company announced plans to slow down its small-ticket postpaid loans while it looks to expand its high-ticket personal loans and merchant loans. The decision has not gone well with brokerages as well, prompting them to cut their revenue estimates for the company. Paytm＊s move comes after the Reserve Bank of India tightened norms for unsecured retail loans in November.

Shares of Paytm ended more than 18% down at Rs 660.70 on the NSE, after being locked in their 20 percent lower circuit in early trade. The company said at its analyst meeting that its postpaid loans could fall to half, but it would not have any impact on margins or revenue. Postpaid had the lowest take rate and hence revenue impact will be minimal, the company added.

"Postpaid loans is a portfolio which is predominantly under Rs 50,000. On the back of the macro developments and regulatory guidance, which is there, we have decided to〞in a calibrated manner〞keep scaling the Rs 50,000 portfolio, especially the Postpaid loan, down," Bhavesh Gupta, President and COO of Paytm, had said in a conference call on Wednesday.

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What Are Brokerage Firms Saying About Paytm's Move?

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US' biggest bank JPMorgan called it a "profit warning", highlighting a sharp moderation in its ticket loan distribution following the system-level concern from the regulators and lending partners, as per BQ Prime report.

On the other hand, brokerage firm Jefferies stated that Paytm's decision to recalibrate its 'Buy now pay later' (BNPL) business came as lending partners dialled back after RBI's recent move on unsecured lending. BNPL disbursals, which make up 55 percent of total disbursements will halve in the next 3-4 months, Jefferies stated in a note. Even though the management plans to partially offset it by scaling up its high-ticket personal loans and merchant loans, Jefferies feels that the quantum of tightening for the BNPL business is ahead of expectations.

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Who All Have Downgraded Paytm?

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JPMorgan

The research firm downgraded Paytm to 'neutral' from ' overweight' on the back of rising concern around unsecured credit likely slowing down revenue/Ebitda. It reduced the target price from Rs 1,200 to Rs 900, implying a downside of 10.70% JPMorgan cut FY24每26 revenue and adjusted Ebitda estimates by 4每9% and 7每34% respectively, driven by a slower lending growth rate. JPMorgan cut FY24每26 revenue and adjusted Ebitda estimates by 4每9% and 7每34% respectively, driven by a slower lending growth rate.

Jefferies

Jefferies has retained a 'buy' on Paytm with a target price of Rs 1,050, implying an upside return potential of 29%. The brokerage expects some moderation in loan disbursals following RBI measures. The quantum is ahead of Jefferies's estimates. "Compared to our earlier estimate of overall loan disbursal growth of 98%/49%/43% in FY24/25/26E, we now expect 65%/5%/27%, respectively".

Motilal Oswal Financial Services

The research firm has a 'buy' rating with a target price of Rs 1,025, implying an upside of 26%. It has trimmed FY24/FY25 disbursement estimates by 15%-18%, reflecting the current developments.

Morgan Stanley

Morgan Stanley has maintained an 'equal-weight' rating on the stock with a target price of Rs 830 per share.

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