Paytm Stocks Plummet 20% In Shocking Dive Amidst Credit Expansion Plans
Paytm's stock suffered another setback in Thursday's trading session, plunging nearly 20 per cent. This marks one of the worst intraday declines since its IPO listing two years ago. Additionally, various brokerage firms downgraded the stock rating, further intensifying the selling pressure.
The stocks took a brutal hit after the firm, in its conference call, declared plans to expand its credit distribution business, focusing on higher-ticket loans for consumers and merchants in partnership with banks and NBFCs.
The stock closed at Rs 660, reflecting an 18.74 per cent loss on the National Stock Exchange (NSE). Notably, the stock has slumped more than 28 per cent in the last nine trading sessions. Recently, Warren Buffet-backed Berkshire Hathaway also sold its entire stake, exacerbating the stock’s downward momentum.
Paytm's stock witnessed a substantial drop following the company's strategic move to reduce the size of Buy Now, Pay Later loans in response to regulatory changes. This decision, impacting more than 50 per cent of its total disbursements, led brokerage firms like Goldman Sachs, Jefferies, and Bernstein to revise their target prices and downgrade the stock, contributing to the significant decline, said Suman Bannerjee, CIO, Hedonova.
In response to recent macro developments and regulatory guidance, the company has rebalanced the portfolio origination of loans below Rs 50,000, primarily the postpaid loan product, which will now constitute a smaller portion of its loan distribution business going forward.
The firm will focus on merchant loans provided to MSMEs as business loans, unaffected by current regulatory guidance, as these loans are granted to small merchants for commercial purposes.
"As the lending distribution business matures, we see newer opportunities for expansion to offer high-value personal and merchant loans. We will continue to focus on originating high-quality portfolios for our lending partners, along with strict adherence to risk and compliance. We believe this expansion will further aid us in growing the business," said a Paytm spokesperson.
In its conference call on the Loan Distribution business, the firm expressed reconsideration of the business due to changes at the macro level, even though, at the company level, asset quality remains largely intact. The firm will de-focus on postpaid loans below Rs 50,000, and the current disbursement run rate of about Rs 30 billion per month is expected to decline by 50 per cent.
The share of personal loans below Rs 50,000 sourced by Paytm is low at about 4 per cent, shifting the focus to larger-ticket personal loans where collection will not be required.
"To put things into perspective, Paytm has guided the following on loan growth; Personal loans would remain muted for two more quarters with a 30 to 40 per cent year-on-year (YoY) growth expected, whereas Merchant loans growth will be healthier, exceeding 50 to 60 per cent. On a blended basis, total credit growth would be 40 to 50 per cent. This guidance itself calls for a material slowdown from FY23 levels," said Shivaji Thapliyal, Head of Research and Lead Analyst, Yes Securities.
It is noted that Paytm has flagged that the impact on profitability would be lower, given that postpaid is a business of lower profitability. However, the latest commentary calls into question the broad thesis that Paytm was fast transforming from a payments-focused company to a loan distribution-focused company. The key question to ask is what proportion of its overall customer base would Paytm ultimately be able to convert into loan customers in the long run, added Thapliyal.
The stock's year-to-date (YTD) returns contracted to 2 per cent, compared to 24 per cent, reflecting 17 per cent returns on benchmark indices, Nifty and Sensex.
