Today, the stock price of One97 Communications, the parent company of Paytm, took a significant hit, dropping by 20% to reach ₹650 per share and triggering a lower circuit limit. This sudden decline followed Paytm’s announcement of scaling back on providing small-sized loans.
Paytm Hit 20% Lower Circuit
Today, the stocks of One97 Communications, the parent company of the Paytm digital payment app, took a nosedive, plummeting 20% to ₹650.45 each and hitting that lower circuit limit. The free fall happened right after the company spilled the beans about scaling back on those little loans, all thanks to some changes in the rules.
Analysts predict that the company’s choice to steer away from providing smaller Buy Now, Pay Later (BNPL) loans is going to make a big splash. This move is expected to heavily influence the total number of loans issued through the platform since more than half of the disbursements come from this particular loan category.
The company shared in a filing on Wednesday that, considering recent changes in the bigger economic picture and regulatory advice, and after talking things over with lending partners, they’ve decided to make some adjustments. In their ongoing effort to maintain a robust portfolio, they’re going to scale down the origination of loans below ₹50,000, especially the postpaid loan product. This will be a smaller piece of their loan distribution business from now on.
But here’s the good news – Paytm assured everyone that they’re keeping their eyes on merchant loans. These loans, designed to support small businesses, are still on the agenda and haven’t been affected by the latest regulatory advice.
Now, the company is adjusting its strategy. They’re directing their attention toward bigger personal and merchant loans, aiming for customers with lower risk and high creditworthiness. And to make it happen, they’re teaming up with major banks and NBFCs (Non-Banking Financial Companies).
According to a spokesperson from Paytm, “As our loan distribution business grows up, we’re spotting fresh chances to spread our wings, especially in providing substantial personal and merchant loans. Our main goal remains creating top-notch portfolios for our lending buddies, all while sticking closely to risk management and compliance standards. The success and support we’ve received for our loan distribution business encourage us, and we believe this expansion will give us an extra boost in growing our business even further.”
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As a result of this news, brokerage firms have lowered their expectations for the stock. Goldman Sachs, a global brokerage firm, decided to dial down its optimism, changing the stock rating from ‘buy’ to ‘neutral.’ They also adjusted the target price to ₹840 per share, down from the earlier ₹1,250.
Likewise, Jefferies revaluated their target price, setting it at ₹1,050 instead of the previous ₹1,300, but they’re keeping the ‘buy’ rating. CNBC-TV18 reported that Bernstein also joined in on the adjustments, lowering the target price to ₹950 from ₹1,100.
On the flip side, the folks over at Motilal Oswal, a local brokerage firm, are still giving Paytm a thumbs up. They’re sticking with their ‘buy’ rating and have set a target price of ₹1,025 per share. Motilal Oswal pointed out Paytm’s smart move toward those more substantial personal and merchant loans. They’re all about highlighting the high demand and effective risk management in this shift. Even with the bigger loans, Paytm will keep earning distribution commission, but they won’t get any collection commission.
Moreover, the brokerage pointed out that the company is now steering clear of certain groups of customers in the postpaid category. They plan to keep a close eye on risks and the quality of assets in this segment. The goal is to expand to more users once the overall economic indicators show improvement.
As of 11:50 AM, the stock was experiencing a 17.63% decline, trading at ₹669.75 per share.
Disclaimer: It’s important to note that the opinions and suggestions expressed in this article are those of individual analysts and do not necessarily reflect the views of Newsvanila. We strongly recommend investors consult with certified experts before making any investment decisions.