Paytm's stock drops 18% as a result of plans to reduce postpaid loans

 Paytm's stock drops 18% as a result of plans to reduce postpaid loans

Paytm's stock drops 18% as a result of plans to reduce postpaid loans

Since the RBI tightened its guidelines for unsecured consumer lending, Paytm has made the decision to reduce the size of its postpaid loan business.

After the business revealed intentions to scale down its small-ticket postpaid loans while increasing its higher-ticket personal and merchant loans, Paytm's shares plunged more than 18% in afternoon trading on December 7. want to grow. The brokerages were also not pleased with this move, which prompted them to lower their projected income for the firm.

Paytm shares closed 20 percent down in the lower circuit during early trade, and as of 12:42 pm, they were trading 18% lower at Rs 666.50 on the NSE.

Volumes have increased as a result of the stock's steep decline, as 3 crore shares have exchanged hands so far, significantly more than the typical monthly turnover of 50 lakh shares.

During its analyst conference, the firm said that although their postpaid loans would cut in half, it wouldn't affect revenue or profitability. According to the business, postpaid had the lowest take rate and would thus have the least effect on revenue.

According to brokerage company Jefferies, Paytm made the decision to reorganize its "buy now, pay later" (BNPL) operations because lending partners withdrew after the RBI recently tightened its regulations on unsecured loans. According to a report from Jefferies, BNPL distributions—which make up 55% of overall distributions—will cut in half over the next three to four months. The management intends to increase its premium personal and merchant loans in order to partly offset this, but Jefferies believes that the level of tightening for the BNPL business has surpassed expectations.

Because of this, the brokerage reduced its projected revenue for Paytm in FY24–2026 by 3–10%, which resulted in a 12–15% decrease in adjusted EBITDA. Additionally, Jefferies maintained its 'buy' recommendation on Paytm while lowering its price objective for the company by more than 19% to Rs 1,050.

Additionally, Goldman Sachs reduced its rating for the company to "neutral" and set a price objective of Rs 840. Additionally, the brokerage firm reduced its expectations for Paytm's revenue and EBITDA for FY24–2026 by 10% and 40%, respectively.

However, Morgan Stanley predicts that Paytm's distribution run-rate would decrease in the near future as a consequence of the move to reduce the company's low-ticket postpaid lending business. 'Equalweight' call on the stock with a price objective of Rs 830 has been issued by the brokerage.

Additionally, according to Motilal Oswal Financial Services, Paytm's overall payout rate is probably going to drop from around Rs 6,000 to about Rs 4,500 crore each month. "Paytm adds an average of 3.5-4 lakh customers every quarter, which is also expected to grow by 50 per cent," said the MOFSL.

While MOFSL said that it monitors the sustainability of these measures and the situation regarding low-cost unsecured loans, the company has lowered its estimated disbursement for FY24/FY25 by 15%–18%, which has led to a reduction in its adjusted EBITDA projections for FY24/25 of 11%–16%.