Paytm share price may rally 46%, says Macquarie as it sees opportunity in high-ticket personal loan segment

Paytm’s decision to recalibrate the lending portfolio was a pre-emptive measure taken in consultation with the partners, says global research firm Macquarie. 

“There was no asset quality deterioration in post-paid or the personal loan segment,” Macquarie said in a note. One 97 Communications, the parent company of Paytm had earlier decided to scale down its small-ticket loans. 

Macquarie has a ‘Neutral;’ stance on Paytm and has maintained its target price of ₹900 per apiece on Paytm shares, which is nearly 46% potential upside from the Monday’s closing price.

Also Read: Devyani International share price jumps nearly 8% on Thailand market entry

“For post-paid loans, management indicated that it’s a risk-averse call based on stress witnessed in certain pockets of the system. While the CoF for NBFC partners will increase on account of higher risk weights for bank funding to NBFCs, for products such as post-paid loans the impact is negligible owing to the short tenor (up to 30 days) of the product,” said the research firm.

Paytm’s management indicated increasing scale in large-ticket personal loans is feasible given certain customers were eligible for higher ticket-size loans earlier as well, but with Paytm’s lending model being restricted to ticket sizes up to ₹0.3 million, the said customers would take loans from other lenders. 

(Exciting news! Mint is now on WhatsApp Channels Subscribe today by clicking the link and stay updated with the latest financial insights! Click here!)

“Further, customers also take personal loans through Paytm despite having a primary deposit relationship with other banks. Paytm identifies this as an opportunity in the high-ticket ( ₹0.3-0.7mn) personal loan market,” Macquarie said. 

Earlier, the fintech giant also increased ticket sizes for good quality customers and has not faced any concerns on asset quality. 

“This is clearly visible, as personal loan ticket sizes have nearly doubled in the past two years. The company started high-ticket personal loan lending in the past 4-5 months,” it added.

In the payments space, Paytm management expects merchants and customers to remain sticky given the service proposition. In the lending segment, given the competition, Macquarie believes that Paytm is targeting continued upselling to its high quality customers, for which it has a data advantage.

Also Read: Vedanta shares jump after announcement of ₹11 per share interim dividend 

Paytm announced that it will further expand its business to offer higher-ticket personal and merchant loans. The company said these loans will be targeted at lower-risk and high-credit-worthy customers, in partnership with large banks and NBFCs.

On an analyst call, Paytm management highlighted that personal loans and merchant loans continue to perform well and in fact, merchant loans are trending towards performing even better.

At 10:05 am, Paytm shares were trading 1.10% higher at ₹622.55 apiece on the BSE.

Catch Live Market Updates here

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.