The share price of One97 Communications, the parent company of digital payment service Paytm, fell 20% in today’s trading, reaching 650 per share. This precipitous drop occurred when the corporation announced plans to reduce small ticket loans.
One97 Communications, the parent company of digital payment service Paytm, had its shares fall 20% in today’s trading, reaching 650.45 per share. This precipitous drop occurred when the company announced plans to reduce small-ticket loans in response to regulatory reforms. Analysts believe the company’s decision to change its focus away from small ticket-size Buy Now, Pay Later (BNPL) loans will have a substantial impact on its overall loan originations through the platform, considering that this sector accounts for more than half of total disbursements.
“On the back of recent macro development and regulatory guidance, in consultation with lending partners and 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 stated in a filing with the stock exchange on Wednesday.
Paytm, on the other hand, has stated that merchant loans will continue to be a focus. Because these loans are made to small businesses for commercial purposes, they are untouched by recent regulatory guidance. Through agreements with large banks and NBFCs, the company is now shifting its focus to higher-ticket personal and merchant loans, targeting lower-risk and high-credit-worthy customers.
“As the lending distribution business matures, we see newer opportunities for expansion to offer high-value personal and merchant loans,” a Paytm representative said. We will continue to focus on originating high-quality portfolios for our lending partners while adhering to tight risk and compliance guidelines. We’ve experienced a lot of growth and acceptance for our loan distribution business, so we anticipate this expansion will help us much more.”
Brokerage firms have cut their target prices for the stock as a result of this development. Goldman Sachs downgraded the stock, changing its recommendation from ‘buy’ to ‘neutral’ and lowering its target price from $1,250 to 840. Similarly, Jefferies reduced their target price from $1,300 to $1,050 per share while maintaining a ‘buy’ rating. Bernstein also reduced its target price to 950 from 1,100, as previously reported.
Domestic brokerage firm Motilal Oswal, on the other hand, maintained a ‘buy’ recommendation with a target price of 1,025 per share. Paytm’s strategy shift toward higher-ticket personal and merchant loans was underlined by the brokerage, which emphasized robust demand and good risk management. It will continue to receive distribution commissions on larger loans but will not receive collection commissions. Motilal Oswal stated that due to mounting asset quality concerns in these segments, the company has de-focused on postpaid (BNPL) and personal loans under $50,000.
Furthermore, the brokerage stated that it has moved away from certain postpaid customer cohorts and will continue to closely monitor risks and asset quality measures in this area. It also intends to broaden the scope to include other users as economic indicators improve. At 10:45 a.m., the stock was down 18.88% to $659.50 per share.
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