Paytm slumps 20% on likely earnings impact from scaling down postpaid loans

Business Standard

Shares of One 97 Communications (Paytm) tumbled 20 per cent on Thursday in what was its worst single-day fall since listing. The stock hit the lower circuit price of Rs 650.65 on BSE in early trades after the company announced it will scale-down small-ticket size loans, especially, those below Rs 50,000. 

At 10:40 am, the stock was slighlty off lows and was trading 17 per cent lower. The development, Paytm said, comes on the back of RBI’s regulatory action of tightening unsecured consumer credit norms last month. 

The sub-Rs 50,000 loans majorly constitute the postpaid loan product (buy now, pay later or BNPL), which the company said could be halved going ahead.

As of July-Sept quarter, the postpaid loans made 55 per cent of the company’s total loans distributed, personal loan and merchant loan were around 25 per cent and 20 per centr, respectively. 

In terms of total disbursements, postpaid loans worth below Rs 50,000 made up 72-75 per cent of overall disbursement amount. 

Many brokerages have reduced target prices (TP) on Paytm, and reduced earnings estimates following the development. 

Goldman Sachs downgraded the stock to neutral and slashed TP to Rs 840 from Rs 1,250 earlier. The brokerage now expects the company to turn net profit positive in FY26 as against earlier expectations of FY25. 

It has also lowered FY24E-26 revenue and adjusted EBITDA estimates by up to 10 per cent and 40 per cent, respectively. 

Jefferies said the BNPL disbursals will halve in next 3-4 months. “The quantum of tightening is ahead of expectations,” it said,  cutting the TP to Rs 1,050 from Rs 1,300. It has reduced FY24-26 revenue estimates by 3-10 per cent, resulting in adjusted Ebitda cut of 12-15 per cent. 

Bernstein too has reduced the TP to Rs 950 from Rs 1,100. 

Paytm said it will now expand the loan distribution business by offering higher ticket loans. 

“Good demand is being seen in higher ticket (Rs 3-7 lacs) low risk personal and merchant loans. Merchant loans are extended to MSMEs as a business loan and hence don’t get impacted because of recent regulatory guidance. There will be minimal or no impact on take rate for these two categories,” it said. 

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