Paytm shares: Will RBI's new risk weights hurt earnings? Jefferies, CLSA answer

Shares of One 97 Communications Ltd (Paytm) fell over 2 per cent in Friday's trade amid across-the-board selling in financial stocks. Foreign brokerage CLSA said an indirect impact of the RBI raising risk weights for unsecured retail loans, including the ones for consumer durables and credit cards, could be a moderation in loan growth for banks over the next few quarters.

This, it said, could also impact the growth rates of fintech intermediaries like Paytm. That said, the brokerage does not think the impact would be large. On Friday, Paytm shares fell 3.88 per cent to hit a low of Rs 870.20 on BSE.

"For Paytm, there could be some impact, but we do not think it would be very large as most of its NBFC partners have a small share of unsecured lending. In addition, it is adding new lending partners, so its dependence on existing partners would decline," it said.

Jefferies said higher funding costs and increased capital requirements for Paytm's lending partners will affect product profitability in Buy Now, Pay Later (BNPL).

"They may respond by tightening credit standards and/or moderating growth from elevated levels right now. We also watch out for pricing environment and ability of Paytm to pass-through hike in funding costs. In our base case earnings, we forecast consumer loan disbursal growth to normalise from 90 per cent in FY24E to 40 per cent in FY25 and 35 per cent in FY26," it said.

Jefferies said any additional 10 percentage points slower disbursal growth against a base case in FY25/26E can lead to 5-10 per cent impact on lending revenues and 2-3 per cent impact on overall contributions, which may impact break-even timelines as well.

"Paytm may be able to compensate this through faster ramp-up of merchant financing business,," Jefferies said.

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