One 97 Communications Ltd (Paytm), whose shares have fallen 7.4 percent in the last five sessions despite the stock market rally, hosted an analyst call to discuss the evolving environment around its loan distribution business. According to Motilal Oswal Securities, key takeaways were that macro headwinds warranted a moderation in growth and that Paytm was re-orienting its strategy towards higher ticket size loans.
According to Motilal Oswal, who attended the analyst meeting, Paytm's plan to shift away from small ticket size BNPL loans will have an impact on total loan originations via the platform because the sector accounts for more than half of total disbursements. Paytm stated that the monthly post-paid loan sourcing run rate would be reduced by 50%, from Rs 3,000 crore to around Rs 1,500 crore.
"As a result, the monthly total disbursement run rate is expected to fall to around Rs 4,500 crore from around Rs 6,000 crore." Paytm adds an average of 3.5-4 lakh customers per quarter, which is now anticipated to drop by half. Paytm believes its sourcing funnel would be mainly impacted because credit-worthy clients will be able to access post-paid services, according to Motilal Oswal Securities in a note.
Paytm's take rates are projected to be minimally affected because BNPL as a product has lower take rates; however, an increase in higher ticket size personal loans should balance the overall impact, according to the domestic brokerage.
"While the longevity of these measures and the outlook in low-ticket unsecured loans remains under watch, we trim our FY24/FY25 disbursement estimates by 15-18 per cent, reflecting the current developments," Motilal Oswal, managing director of Motilal
Meanwhile, Paytm will continue to receive distribution commission on larger loan amounts but will not receive collection commission.
Given mounting worries in these areas, the corporation is de-focusing on post-paid (BNPL) and personal loans of less than Rs 50,000. Furthermore, Paytm has abandoned some specific cohorts of Post-paid clients and will continue to closely monitor risks and asset quality measures in this category, according to Motilal Oswal.
"Paytm stated that the reduction in post-paid business is primarily prudential in nature, with the goal of avoiding asset quality issues in the coming quarters." Asset quality measures remain stable, and the increase in high-ticket personal loans and merchant loans, as well as the increased number of lending partners, should support consistent growth in the medium term," Motilal Oswal said.
This brokerage values Paytm at 20 times FY28E EV/Ebitda and discounts it to FY25E at a 14 percent discount rate to arrive at a target price of Rs 1,025. Motilal Oswal maintained its 'Buy' call on Paytm.
