Paytm hits 20% lower circuit as firm decides to cut down on small-ticket loans; brokerages slash target prices

Paytm share price NSE: Shares of One97 Communications, the parent firm of the fintech company Paytm, in trade on Thursday (December 7) started on a weak note after ending lower on the previous day. The sharp cut in stock was triggered after the payments company decided to increase the disbursal of high-value loans.

After opening over 8 per cent lower, the stock hit 20 per cent lower circuit at Rs 650.65.

The initiative has been taken after the RBI's guidelines on unsecured loans, wherein it has increased the risk weights for consumer loans, thereby making credit offtake expensive for both lenders and consumers.

On the move, all major global brokerages have downgraded the stock and substantially reduced the target price.

In a press release released after market hours on Wednesday, the company said, given the strong portfolio performance and widespread acceptance of loan distribution, adds newer forms of loan offerings. 

The fintech player further said it plans to include higher ticket personal and merchant loans to lower risk and high credit-worthy customers. On the back of recent macro development and regulatory guidance, in consultation with our lending partners, will reduce less than ₹50,000 loan distribution and expand higher ticket loan distribution, it added.

Global brokerages' views on Paytm 

CLSA has downgraded the stock to 'Outperform' from 'Buy' call and reduced the target price substantially from the earlier Rs 1200 to Rs 925. The brokerage is of the view that the company will foray in the higher-ticket personal loan segment, a space it is not currently in. However, these lenders will take time to scale, noted CLSA. While we cut our FY25-26 CL loan disbursements 30%-35%, we lower our corresponding revenue estimate only 14%-15%, as BNPL or buy-now-pay later is a low take-rate business.  We decrease our adjusted Ebitda estimates by 12%-16%, added the brokerage. CLSA believes macro concerns and sentiment on unsecured lending will weigh on the stock.  

JP Morgan has also turned neutral on the financial services provider. The company has slashed the target price to Rs 900 from Rs 1200. The brokerage highlighted that the company issued a profit warning in a business update call, highlighting a sharp moderation in its low ticket (<Rs50k) loan distributions. It has guided for a 40-50% decline in its postpaid (BNPL) loan disbursals vs. 2Q levels (~56% of total disbursals). We downgrade on the back of rising concerns around unsecured credit and likely slowdown in FS revenues/EBITDA, the brokerage said. We cut our FY24-26 revenue and Adj. EBITDA estimates by 4-9% and 7-34% respectively,  added the brokerage. We will stay on the sidelines till the impact of the credit cycle on Paytm’s portfolio fully plays out, the brokerage stated.

Goldman Sachs double downgrades the stock to neutral from buy with a reduced target price of Rs 840 as against the earlier set target at Rs 1250. The brokerage has lowered FY24-26E revenue/ adjusted EBITDA established by up to 10%/40%. Also, it says the company's net income to turn positive in FY26 as against FY25.

Bernstein, however, maintained an 'Outperform' rating on the counter with a reduced target price of Rs 950 as against Rs 1100.  The company announced that it intends to scale down its postpaid product even as its asset quality remains healthy. This is viewed as a negative development by the brokerage.

Jefferies is the only brokerage with a 'buy' rating retained and a comparatively higher target set at Rs 1030. The company earlier gave a target of Rs 1300 for the stock. The brokerage mentioned that the company will recalibrate BNPL business, as lending partners dialed back after the recent RBI measures.  The brokerage said BNPL disbursals (55% of overall) will halve in the next 3-4 months. And the management plans to partially offset it with scale-up of high-ticket PL/ML loans.  The quantum of tightening is ahead of expectations, and we cut FY24-26E revenues by 3-10%, leading to Adj. EBITDA cut of 12-15% , re-rating will take time, it added.