Paytm shares plunge 20%; what’s the outlook on One 97 Communications share price?

Paytm, India’s digital payments firm, experienced a significant drop of up to 20% in its stock price on Thursday. This decline, the largest since its listing two years ago, comes as a result of the company’s decision to reduce the issuance of low-value personal loans following the Reserve Bank of India‘s (RBI) tightened regulations on consumer lending.
Shares of One 97 Communications, the entity behind Paytm, closed the day at Rs 660.70, down Rs 152.35 or 18.74%.
The non-bank lender announced on Wednesday that it will be cautious in providing loans below Rs 50,000 but will focus on expanding its portfolio of high-value personal and commercial loans.
The move by Paytm reflects a more cautious stance in this lending segment, according to statements from Bhavesh Gupta, the company’s president and chief operating officer, during discussions with analysts. Gupta explained that considering recent macro developments and regulatory guidance, Paytm, in collaboration with its lending partners, has opted to reduce loan offerings below Rs 50,000.

Where is Paytm parent One 97 Communications’s share price headed?

According to a Reuters report, analysts at Goldman Sachs believe that increasing the number of high-value loans will not entirely compensate for the reduction in smaller loans. As a result, it downgraded One 97 Communications, the parent company of Paytm, from a ‘buy’ to a ‘neutral’ rating and lowered its price target from Rs 1,250 to Rs 840.

Goldman Sachs also stated that Paytm’s net income is expected to turn positive in the fiscal year 2025-26, which is a year later than previously anticipated, due to a slowdown in revenue growth.

Despite the decrease in loan volume through its post-paid product, Paytm predicts that the impact on revenue growth will be minimal, with an estimated decline of approximately 40%-50%.
Jefferies, a global investment banking firm, believes that the moderation in loan disbursal is happening earlier than expected. Consequently, they have reduced their revenue estimate for the financial years 2024-2026 by 3%-10% and lowered the target price from Rs 1,300 to Rs 1,050.
Shivaji Thapliyal, Head of Research and Lead Analyst, Yes Securities has said that Paytm’s commentary, in a sense, 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 be ultimately able to convert into loan customers in the long-run, he says.
“We had started with a SELL rating for One 97 Communications (Paytm) at the time of its IPO. We have a still less-than-bullish ADD rating on the stock and have never put a BUY rating on it.” Thapliyal said.
In the July-September period, post-paid loans, which allow customers to pay for purchases in installments without interest, accounted for more than half of Paytm’s total loans. Despite the recent decline, Paytm’s shares have still shown a 25% increase this year, outperforming the Nifty financial services index, which has grown by 10.7%.
Currently, Paytm has seven non-bank finance companies (NBFCs) as lending partners and plans to add one bank and two NBFC partners. Analysts at IIFL Securities have noted that the recent regulatory tightening by the RBI is resulting in a slowdown in growth and an increase in delinquencies in certain segments of unsecured consumer loans.