In Thursday's trade, shares of One 97 Communications Ltd (Paytm) hit their 20% lower circuit limit due to concerns about Paytm's strategy to move away from small ticket size BNPL loans, which analysts said would affect total loan originations via the platform, as the segment accounts for more than 50% of total disbursements. Paytm shares dropped 20% to a lower circuit limit of Rs 650.65 on the BSE. The stock then rebounded slightly, although it was still down 17.87% at Rs 668.

Paytm, according to Nomura India, will reduce monthly payments in its small-ticket 'postpaid' (i.e., pay-later) loan product by 40-50 percent. According to Paytm management, this move was made in cooperation with its lending partners, in light of the RBI's recent regulatory action of increasing risk weights in unsecured retail loans. The 'postpaid' loan product is responsible for 55% of quarterly disbursements.

Paytm also stated that it would place a greater emphasis on high-ticket personal loan disbursements. According to credit bureau data provided by Nomura India's India NBFC analyst, small-ticket personal loans under Rs 50,000 have a rising number of consumers who have several loan products.

Paytm emphasized that this crackdown on small-ticket 'postpaid' loans is the result of a deliberate decision made by the company in consultation with its lending partners. Paytm's expected credit loss (ECL) for this product has only been revised downward in the last year, from 1.1-1.3 percent in Q3FY23 to 0.65-0.85 percent in 2QFY24, indicating solid portfolio performance, according to management," Nomura India stated.

According to JM Financial, the rebound of Paytm stock price since 2022 lows (up 59% year on year) has been driven by a robust increase in loan distribution business revenues and operational efficiencies.

Given the slightly abrupt pullback on a key growth lever, Paytm's stock price is expected to fall until growth patterns stabilise and the new strategy is implemented.

"We've revised Paytm's FY24E Ebitda loss to Rs 680 crore (down 11 per cent and adjusted Ebitda to Rs 760 crore) and FY25E Ebitda to Rs 470 crore (down 31 per cent and adjusted Ebitda to Rs 1,500 crore) and reduced our target price to Rs 1,120," the firm said.

Paytm is valued at 20 times FY28E EV/Ebitda by Motilal Oswal Securities. The stock has a target price of Rs 1,025 according to this brokerage. Motilal Oswal maintained its 'Buy' recommendation on Paytm shares.