Paytm share price up 2.5% today after a 19% fall in previous session

The stock rose as much as 2.5 percent to ₹678.10 in morning deals. In the previous session, December 7, the stock lost 19 percent to settle at ₹661.30.

In a recent presentation, Paytm announced a strategic decision to scale back on the distribution of small-ticket ‘postpaid’ loans as a proactive and prudent measure. This move is a response to the Reserve Bank of India’s (RBI) recent tightening of regulations, particularly the increase in risk weights on unsecured loans.

The affected segment, which constitutes approximately 55% of the company’s quarterly disbursements, had been experiencing rapid growth at a rate of 120% year-on-year in the second quarter of the fiscal year 2023-24. Paytm emphasized that about 70% of personal loans fall below the ₹50,000 threshold.

To implement this reduction in exposure, Paytm plans to undertake a comprehensive review and adjustment of credit limits, non-renewal of existing credit lines for specific customers, and a decrease in the onboarding of new customers in this particular segment. The company aims to achieve a significant reduction of around 40-50% in the small-ticket ‘postpaid’ loan category. This strategic shift aligns with the company’s commitment to risk management in light of the regulatory changes imposed by the RBI.

“On the back of recent macro development and regulatory guidance, in consultation with lending partners, in line with its continued focus on driving a healthy portfolio, the company has recalibrated the portfolio origination of less than ₹50,000, which is prominently the postpaid loan product and will now be a smaller part of its loan distribution business going forward,” the company said in an exchange filing on Wednesday.

The company is now shifting its focus to higher-ticket personal and merchant loans, targeting lower-risk and high-credit-worthy customers through collaborations with major banks and NBFCs.

According to analysts, the company’s decision to shift focus away from small ticket-size Buy Now, Pay Later (BNPL) loans will have a significant impact on its overall loan originations through the platform, given that this segment constitutes over 50 percent of total disbursements.

Following this development, brokerage firms have reduced their target prices on the stock. Global brokerage firm Goldman Sachs downgraded the stock, shifting its rating from ‘buy’ to ‘neutral’, revising the target price to ₹840 apiece from the earlier ₹1,250 apiece.

Similarly, Jefferies adjusted its target price to ₹1,050 from ₹1,300 apiece but maintained a ‘buy’ rating. Bernstein also lowered its target price to ₹950 from ₹1,100.

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Published: 08 Dec 2023, 09:19 AM IST