Paytm Faces Steep Share Decline of 20% After Scaling Back Loans

Paytm, the digital payment app's parent company, One97 Communications, witnessed a significant setback on Thursday as its shares nosedived by 20 per cent, reaching 650 rupees each. This drop was triggered by Paytm's decision to reduce its small-ticket or personal loan offerings. The company made this move in response to the recent tightening of lending rules by the central bank. This pronounced decline marks the company's most significant single-day setback since its listing day.

Following an extended period of bullish momentum in the Indian equities, the Sensex experienced slight declines during the morning trading session on Thursday.

The Sensex saw a minor decline of 251 points or 0.36 per cent at 9:55 am. In a parallel trend, Nifty, the 50-company index, experienced a decrease of 54 points or 0.26 per cent.

Paytm is under scrutiny from analysts, who have revised their ratings and lowered their price projections for the stock in the upcoming months.

Goldman Sachs (GS) has downgraded Paytm to a Neutral rating with a target price of Rs 840.

GS has lowered its revenue and adjusted EBITDA estimates for FY24E-26E by approximately 10 per cent and 40 per cent, respectively. Despite the adjustments, GS anticipates a positive net income in FY26, a shift from their previous projection of FY25.

Jefferies has maintained a Buy rating on Paytm but revised its target down to Rs 1,050 from Rs 1,300. The adjustment is attributed to the recalibration of the Buy Now, Pay Later (BNPL) business in response to reduced support from lending partners following recent regulatory measures by the RBI.

Jefferies foresees a 50 per cent reduction in BNPL disbursals over the next 3-4 months, constituting 55 per cent of the overall business. Paytm's management aims to counterbalance this setback by expanding high-ticket Personal Loans (PL) and Merchant Loans (ML). The tightening measures have surpassed expectations, leading Jefferies to cut revenue estimates for FY24-26 by 3-10 per cent, resulting in a 12-15 per cent reduction in adjusted EBITDA.