Paytm shares hit 20% lower circuit limit today. Here's why

Shares of One 97 Communications Ltd (Paytm) hit their 20 per cent lower circuit limit in Thursday's trade amid concerns over Paytm’s strategy to move away from small ticket size BNPL loans, which anlaysts said would affect the total loan originations via the platform, as the segment forms over 50 per cent of total disbursements.

Paytm shares fell 20 per cent to hit lower circuit limit at Rs 650.65 on BSE. The stock later recovered a bit but was still down 17.87 per cent at Rs 668.

Paytm, Nomura India said, suggested that it will be scaling down monthly disbursements in its small-ticket ‘postpaid’ (i.e., pay-later) loan product by 40-50 per cent. According to the Paytm management, this decision has been taken by the company in consultation with its lending partners, taking cognisance of RBI’s recent regulatory action of raising risk weights in unsecured retail loans. The ‘postpaid’ loan product accounts for 55 per cent of the quarterly disbursements.

Paytm also announced it would be increasing focus on high-ticket personal loan disbursements. Credit bureau data compiled by Nomura India's India NBFC analyst show that small-ticket personal loans below Rs 50,000 ticket-size are seeing an increasing proportion of customers with multiple loan products.

Also read: Paytm shares updates on loan distribution business; key takeaways

"Paytm highlighted that this clampdown on small-ticket ‘postpaid’ loans is driven by a conscious call taken by the company, in consultation with its lending partners. Paytm’s own expected credit loss (ECL) for this product has only been revised downwards over the past year from 1.1-1.3 per cent in Q3FY23 to 0.65-0.85 per cent in 2QFY24, suggesting strong portfolio performance, as per management," Nomura India said.

JM Financial said the resurgence of Paytm stock price since 2022 lows (up 59 per cent on 1-year basis) was led by strong uptick in loan distribution business revenues and operational efficiencies thereof.

Given the slightly abrupt pullback on a key growth lever, it expects Paytm's stock price to react negatively until growth trends stabilise and new strategy plays out.

"We've revised Paytm's FY24E Ebitda loss to Rs 680 crore (down 11 per cent and adjusted Ebitda to Rs 760 crore) and FY25E Ebitda to Rs 470 crore (down 31 per cent and adjusted Ebitda to Rs 1,500 crore) and reduced our target price to Rs 1,120," JM Financial.

Motilal Oswal Securities values Paytm at 20 times FY28E EV/Ebitda. This brokerage suggested a target price of Rs 1,025 on the stock. Motilal Oswal retained its 'Buy' call on Paytm shares.

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