Shares of One97 Communications, Paytm’s parent company, took a significant hit on Thursday, witnessing a sharp 19% drop. Closing at ₹660.70 on the National Stock Exchange, the shares experienced an 18.74% decline. A similar trend was observed on the Bombay Stock Exchanges, with shares falling 18.69% to ₹661.30 each.
This drastic downturn was triggered by Paytm’s announcement of adopting a more cautious approach towards loans below ₹50,000, signaling a strategic shift towards prioritizing high-ticket loans. The company articulated its intent to concentrate efforts on the merchant side, diverting attention from the consumer side. Bhavesh Gupta, Paytm’s President and Chief Operating Officer, outlined this shift, stating, “Our focus now on the calibration of business is on high ticket, slowing down to less than ₹50,000.”
The sharp decline in share prices wiped out more than $1 billion in market value for One97 Communications, marking the most significant plunge in share prices for the Noida-based company in the past two years.
Following the company’s announcement of scaling back on loans below ₹50,000, reports from Bloomberg indicate that at least five brokerage firms, including Goldman Sachs Group Inc., JPMorgan Chase & Co., and Citigroup Inc., downgraded their ratings for Paytm.
In November, the Reserve Bank of India directed lenders to increase provisions against unsecured debts such as personal loans and credit card borrowings, a move aimed at safeguarding against potential risks. This decision could have implications for consumer spending, potentially contributing to the challenges faced by companies like Paytm.
Citigroup’s analysts have voiced apprehensions, noting in a statement that while Paytm’s strategic shift aids customer acquisition, it might adversely affect the company’s medium-term growth potential. In response, Citigroup downgraded the stock from buy to neutral.
The note also underscored an expected decline in Paytm’s operating profit by around 20 percent for the fiscal year 2024-2025. Citigroup emphasized that a substantial share, nearly 75 percent, of Paytm’s loans were below ₹50,000, underscoring the potential repercussions of the company’s choice to reduce focus on this lending segment.