Paytm's Stock Dive 20%! The Inside Story Behind the Small Loans Cutback

Paytm: The parent company of Paytm, One97 Communications, saw a steep drop in its shares, which during early trading on Thursday reached a 20% lower circuit. Paytm's announcement to prioritise higher-ticket loans over small-ticket loans and restructure its "Buy now, pay later" business coincided with this downturn.

Paytm's 20% Lower Circuit Trigger

Despite the fact that the shares initially set off a 20% lower circuit, they were trading at a 15.81% decrease, hitting Rs 684.50 at approximately 9:58 am. Since the company's listing, today has been the most difficult one. A number of analysts who follow the company have criticised Paytm for its decision to cut back on small loans. Speculators pointed out that this action would affect the platform's overall loan originations, since that particular segment accounts for more than half of all disbursements.

Examining Paytm's Decrease in Low-Cost "Postpaid" Loans

In response to Paytm's strategy change, Nomura India stated that the company had announced a 40–50% decrease in monthly disbursements for its low-cost "postpaid" loan product. Paytm claims that the decision was made after consulting with lending partners and taking into account the Reserve Bank of India's (RBI) recent regulatory actions that raised the risk weights on unsecured retail loans. The loan product referred to as "postpaid" accounts for 55% of the quarterly payments.

Paytm's Emphasis on Expensive Personal Loans Unveiled

Furthermore, Paytm revealed a greater emphasis on the disbursement of expensive personal loans. According to credit bureau data from Nomura India, a growing percentage of consumers in the small-ticket personal loan segment with ticket sizes under Rs 50,000 have multiple loan products. Nomura India said, "Paytm highlighted that this clampdown on small-ticket ‘postpaid’ loans is driven by a conscious call taken by the company, in consultation with its lending partners."

Paytm's Stock Surge and the Driving Factors

According to JM Financial, a strong increase in loan distribution business revenues and operational efficiencies was the main factor behind Paytm's recent stock price surge since 2022 lows. But given this sudden retreat in a crucial growth sector, it expects Paytm's stock price to fall until growth trends level off and the new plan becomes clear. "We've revised Paytm's FY24E Ebitda loss to Rs 680 crore and reduced our target price to Rs 1,120," said JM Financial.

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