Shares of Paytm experienced a sharp decline of 20 percent in the opening trade today on December 7. The nosedive followed the company’s announcement of plans to slow down its small-ticket postpaid loans while simultaneously focusing on the expansion of high-ticket personal loans and merchant loans. The market’s response to this strategic shift prompted brokerages to revise their revenue estimates for Paytm.
During early trading hours, Paytm shares were locked in the 20 percent lower circuit at Rs 650.45.
Jefferies, a prominent brokerage firm, expressed concerns over Paytm’s decision, attributing it to lending partners pulling back in response to the Reserve Bank of India’s recent measures on unsecured lending. Jefferies noted in a statement that ‘Buy now pay later’ (BNPL) disbursals, constituting 55 percent of total disbursements, are expected to halve in the next 3-4 months.
Despite Paytm’s plans to partially offset this reduction through the scaling up of high-ticket personal loans and merchant loans, Jefferies deemed the magnitude of the tightening in the BNPL business as exceeding expectations.
Consequently, Jefferies revised its revenue estimates for Paytm for the fiscal years 2024-2026, reducing them by 3-10 percent. Adjusted EBITDA estimates also saw a cut by 12-15 percent. The brokerage adjusted its price target for Paytm downward by over 19 percent to Rs 1,050, maintaining a ‘buy’ call on the stock.
Motilal Oswal Financial Services echoed similar sentiments, anticipating a decline in Paytm’s total disbursement run rate from approximately Rs 6,000 crore per month to around Rs 4,500 crore per month. The firm also projected a 50 percent reduction in the quarterly addition of customers, down to 3.5-4 lakh. MOFSL, while cautious about the longevity of these measures, adjusted its disbursement and EBITDA forecasts for FY24/25.
