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Business News/ Markets / Stock Markets/  Paytm hits 20% lower circuit on brokerage downgrades as company decides to cut down on small ticket loans

Paytm hits 20% lower circuit on brokerage downgrades as company decides to cut down on small ticket loans

The share price of One97 Communications, the parent entity of digital payment app Paytm, tumbled in today's trade, hitting the lower circuit limit of 20%, reaching 650 apiece. This sharp fall came after the company announced plans to cut down on small ticket loans.

The company is now shifting its focus to higher-ticket personal and merchant loans, targeting lower-risk and high-credit-worthy customers through collaborations with major banks and NBFCs.

Shares of One97 Communications, the parent entity of digital payment app Paytm, tumbled in today's trade, hitting the lower circuit limit of 20%, reaching 650.45 apiece. This sharp fall came after the company announced plans 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.

Also Read: Paytm to cut down on small-ticket loans after RBI tightens consumer lending norms, set to expand higher-ticket ones

"On the back of recent macro development and regulatory guidance, in consultation with lending partners, in line with its continued focus on driving a healthy portfolio, the company has recalibrated the portfolio origination of less than 50,000, which is prominently the postpaid loan product and will now be a smaller part of its loan distribution business going forward," the company said in an exchange filing on Wednesday.

However, Paytm affirmed that merchant loans will remain a focal point. Since these loans are provided for business purposes to small merchants, they remain unaffected by recent regulatory guidance.

The company is now shifting its focus to higher-ticket personal and merchant loans, targeting lower-risk and high-credit-worthy customers through collaborations with major banks and NBFCs.

Also Read: Paytm wallet services are back after a brief outage

A Paytm spokesperson said, "As the lending distribution business is maturing, we see newer opportunities of expansion to offer high-value personal and merchant loans. We will continue to focus on originating the high portfolio quality for our lending partners, along with strict adherence to risk and compliance. We have seen great scale and acceptance for our loan distribution business, so we believe this expansion will further aid us to grow the business."

Following this development, brokerage firms have reduced their target prices on the stock. Global brokerage firm Goldman Sachs downgraded the stock, shifting its rating from 'buy' to 'neutral', revising the target price to 840 apiece from the earlier 1,250 apiece.

Similarly, Jefferies adjusted its target price to 1,050 from 1,300 apiece but maintained a 'buy' rating. Bernstein also lowered its target price to 950 from 1,100, as reported by CNBC-TV18.

Also Read: Warren Buffett’s Berkshire Hathaway exits Paytm, sells complete 2.46% stake

Conversely, domestic brokerage firm Motilal Oswal maintained a 'buy' rating with a target price of 1,025 apiece. The brokerage highlighted Paytm's strategic shift towards higher-ticket personal and merchant loans, emphasising strong demand and effective risk management. For higher-ticket-size loans, it will continue to receive distribution commission but will not receive any collection commission.

Motilal Oswal pointed out that the company de-focused on postpaid (BNPL) and personal loans below 50,000 to avoid any asset quality issues, given rising concerns in these segments.

Also Read: MSCI Index Rejig: Paytm, IndusInd Bank, Suzlon among nine stocks included in Standard Index

Additionally, the brokerage said that the company has moved away from some specific cohorts of customers in postpaid and will continue to carefully monitor risks and asset quality metrics in this segment. It further aims to widen the scope to other users once macro indicators improve.

At 10:45 AM, the stock was trading with a drop of 18.88% at 659.50 apiece.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decision.

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