Paytm share price down 38% since October highs. Should you Buy, Sell or Hold?

Paytm ( One 97 Communications ) share price declined up to 6.25% during intraday trades on the BSE on Tuesday. Weak investor sentiments are reflected in more than 37%  correction in stock prices from October highs.

The major impact to investor confidence was provided by the recent brokerage downgrades following company's decision to cut down on small ticket loans amid regulatory changes.

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% of total disbursements.

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While Paytm also announced expanding its credit distribution business to enhance focus on higher ticket loans for consumers and merchants in partnership with banks and NBFCs however overall analysts concerns remain elevated on shift in focus from its small ticket size BNPL loans.

Analysts at JM Financial commenting on high ticket personal and merchant loans had said that these newer loans will be directed only to well-tested, prime segment customers on the platform. While we will closely monitor the impact of this strategy of raising ticket sizes meaningfully, near-term growth on lending business and thus financial services revenues is likely to get impacted. At the same time, Paytm Postpaid also serves as a funnel for PL disbursements and this sharp cut could impinge on medium term growth rates on Personal Loans.

Since the resurgence of Paytm stock price since CY22 lows  was led by strong uptick in loan distribution business revenues and operational efficiencies thereof. Given the slightly abrupt pullback on a key growth lever, analysts expect stock price to react negatively until growth trends stabilize and new strategy plays out

Shivaji Thapliyal, Head of Research and Lead Analyst, Yes Securities said that Paytm has stated that for personal loans, the growth would be 15-20%, which is materially lower than the earlier guidance in the 2Q call. Also for merchant loans, the growth would be 30-45%, which is also materially lower than the earlier guidance in the second quarter call. For postpaid loans, disbursement run rate is expected to halve, which is a significantly material downward revision.

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Analysts at Motilal Oswal Financial Services though remain watchful on the longevity of these measures and the outlook in low-ticket unsecured loans , they had trimmed their FY24 and FY25 disbursement estimates by 15%-18%, resulting in an 11-16% cut in their adjusted Ebitda over FY24 and FY25 (estimated).

Nevertheless despite earnings cuts, the target prices of brokerages still indicate upside for the stock. The target price of JM Financial stands at ₹1120 while for Motilal Oswal it is at ₹1025

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