It's a good correction for Paytm as well as for some of the other NBFCs, says Siddhartha Khemka

Siddhartha Khemka, Head of Retail Research at Motilal Oswal Financial Services, has lauded the recent strategic correction undertaken by Paytm, asserting its positive impact not only for the leading payments platform but also for several other non-banking financial companies (NBFCs).

“It's a good correction for Paytm, as well as for some of the other NBFCs,” he said.

In a recent analyst call on Wednesday, Paytm, the leading payments platform, unveiled its strategic plans to cater to the growing demand in higher ticket size loans ranging from ₹3 lakh to ₹7 lakh. The company highlighted the robust demand for low-risk personal loans and merchant loans, signaling a shift in its lending strategy.

Paytm revealed that it is in consultation with lending partners and is set to reduce its exposure to loans worth less than ₹50,000. Simultaneously, the company aims to expand its footprint in higher ticket size loans, aligning its focus with evolving market trends.

This strategic move, however, took a toll on the company's stocks. Shares of One 97 Communications Ltd., the parent company of Paytm, experienced a significant downturn, plummeting by 20% and triggering a lower circuit. This marked the worst day for the company's shares since its listing, following the announcement of the recalibration of small ticket loans and adjustments in its Buy Now, Pay Later (BNPL) business.

He stated that there might have been an exaggeration in response to Paytm's share prices. He emphasized the common market tendency to react sharply to news, either driven by fear or greed.

“There was some exaggeration in the reaction to what Paytm share prices did yesterday. What we generally see in the market is that market reacts sharply on either ways be it on the fear side or be it on the greed side,” he said.

Khemka acknowledged that while the adjustment pertains to a relatively small portion, around 4-5% of personal loans in the less than ₹50,000 category, and postpaid loans contribute insignificantly to the overall loan book, it sheds light on potential concerns regarding the disbursement of retail loans.

In response to the event, Motilal Oswal Financial Services revised its disbursement estimates, resulting in an 11-16% reduction in the overall EBITDA estimate.

Despite the adjustments, Khemka maintained a positive view on Paytm, lowering the target price to ₹1,025 but highlighting its substantial upside from a one-year perspective.

“We continue to maintain a positive view on Paytm. We have also lowered the target price. Nonetheless, it still is at a much higher level than current level. So our target price is ₹1,025, which gives us significant upside from a one-year perspective,” he explained.