Shares of Paytm, which rallied over 80% during this year to cross the INR 900 mark on the back of steady improvement in its bottomline, slumped to a seven-month low of INR 661.3 on the BSE on Thursday (December 7) on concerns about the growth in its lending business.
Many brokerages cut their price target on the stock, including at least one rating cut, following the company’s decision to scale down its postpaid loans or BNPL lending category as it looks to reduce its focus on small-ticket loans of less than INR 50K.
In a disclosure on Wednesday, Paytm said it would recalibrate the portfolio origination of less than INR 50K due to the recent regulatory changes. The company said it would now focus on expanding high-ticket personal and merchant loans categories.
It is pertinent to note that the Reserve Bank of India (RBI) increased the risk weightage for outstanding and new unsecured consumer credit exposure of commercial banks and NBFCs by 25% points last month, which led to Paytm’s NBFC partners becoming cautious about the below INR 50K loan category.
In today’s trading, shares of Paytm plummeted almost 19% to end the session at INR 661.3 on the BSE. Intraday, the shares fell to INR 650.65.
Goldman Sachs cut its rating on Paytm to ‘neutral’ from ‘buy’ and slashed the price target (PT) to INR 840 from INR 1,250 earlier.
The international brokerage, which was largely bullish on Paytm’s growth trajectory, now projects Paytm to turn profitable in FY26 as against its earlier outlook of FY25.
Goldman Sachs also cut its disbursal growth estimates for FY25 to 0% year-on-year (YoY) from 37% earlier.
Jefferies also cut its PT on Paytm to INR 1,050 from INR 1,300 earlier.
Paytm’s decision to halve its BNPL disbursals reflects growing conservatism in the system as well as Paytm’s large share in the segments, said Jefferies.
“The quantum of tightening is ahead of expectations,” it said, while also slashing FY24-26 revenue estimates by 3-10%, leading to an adjusted EBITDA cut of 12-15%.
On the other hand, Morgan Stanley maintained its ‘equal-weight’ rating on the stock with a price target of INR 830. The brokerage expects Paytm’s disbursement run-rate to drop in the near term and said that it will closely monitor the scale-up of its high-ticket unsecured lending business.
Meanwhile, domestic brokerage JM Financial cut its PT on Paytm to INR 1,120 from INR 1,325 earlier.
“While we will closely monitor the impact of this strategy of raising ticket sizes meaningfully, near-term growth on lending business and thus financial services revenues is likely to get impacted,” said the brokerage.
JM Financial believes that the Paytm Postpaid also serves as a funnel for personal loan disbursements and the sharp cut could impinge on medium-term growth rates of that vertical also (which can only be partially offset by ticket size increase in personal loan).
The brokerage expects the average ticket size for the personal loan portfolio to grow to INR 0.2 Mn in FY25 from INR 0.16 Mn currently. It said the latest move will have minimal impact on Paytm’s EBITDA.
“Given the slightly abrupt pullback on a key growth lever, we expect stock price to react negatively until growth trends stabilise and a new strategy plays out,” JM Financial added.
After the slump today, Paytm shares are now trading over 24% higher year to date.
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