This recent decline follows a nearly 5 percent drop in November. The overall trend reflects weak investor sentiments and a large correction of more than 40 percent from its 52-week high of ₹998.30, reached on October 20, 2023. This decline represents the most significant drop for the company since its announcement of changes to its small-ticket loans and Buy Now, Pay Later (BNPL).
The ongoing challenges and changes in Paytm’s business strategy seem to be affecting investor confidence, leading to a notable correction in the stock’s value over the past two months.
Despite this recent decline, the stock has shown a 17 percent increase in the last 1 year and a 12 percent increase in the year-to-date performance for 2023.
The decline in investor confidence is linked to recent brokerage declines, triggered by Paytm’s decision to scale back small-ticket loans in response to regulatory changes. The strategic shift away from small-ticket Buy Now Pay Later (BNPL) loans is expected to have a significant impact on the platform’s total loans, as small-ticket size BNPL loans account for more than 50 percent of total disbursements.
Although Paytm has outlined plans to expand its credit distribution business by focusing on higher ticket loans for consumers and merchants in collaboration with banks and NBFCs, analysts remain cautious. Concerns persist over the exit of small portfolio size BNPL loans, reflecting uncertainties and challenges associated with the strategic shift.
During a recent analyst call, Paytm unveiled strategic plans to meet the growing demand for higher portfolio size loans ranging from ₹3 lakh to ₹7 lakhs. The company also highlighted increased demand for low-risk personal loans and business loans. These announcements provide insight into Paytm’s efforts to adapt to market changes and diversify its loan offerings amid challenging market conditions.
Fundamental View
The recent decline in Paytm’s share price has prompted analysts to either downgrade their recommendations or adjust their price targets for the stock over the next 12 months. Despite these downgrades, it is noteworthy that none of the analysts issued a “sell” recommendation on the stock.
This indicates that while there may be concerns or adjustments in their outlook for Paytm, analysts are not completely bullish on the stock.
However, the target prices of various brokerages for the shares vary from ₹830 to ₹1,120.
Motilal Oswal: The brokerage maintained its positive view on the stock but cut its target price to ₹1,025, which implies a massive potential of 71 percent. MOSL lauded Paytm’s recent strategic move, suggesting that it not only benefits the leading payments platform but also has positive implications for other non-banking financial companies (NBFCs). It noted that market reactions often exhibit exaggeration, whether due to fear or greed.
MOSL also addressed the recent fluctuations in Paytm’s share prices, stating that the market reaction may have been exaggerated. The brokerage emphasized that the adjustment refers to a relatively small portion, approximately 4-5 percent of personal loans in the less than ₹50,000 category. While arrears contribute insignificantly to the overall loan book, it acknowledged that this development sheds light on potential concerns about the disbursement of retail loans.
The brokerage also remains alert to the longevity of these measures and the outlook in low portfolio unsecured loans. It cut its FY24 and FY25 spending estimates by 15-18 percent, resulting in an 11-16 percent cut in its adjusted Ebitda over FY24 and FY25 (estimated).
JM Financial: The brokerage has a bullish view on the stock and has the highest target price among peers at ₹1,120, which implies a strong potential of more than 86 percent.
According to the brokerage, the rally in Paytm shares since 2022 lows has been led by a strong increase in the income from business loan distributions and operational efficiencies thereof. With a “slightly abrupt” pullback from a key growth driver, this brokerage expects Paytm’s share price to continue to react negatively until growth trends stabilize and a new strategy takes place.
“We have revised Paytm’s FY24E Ebitda loss to ₹680 crore (down 11 percent and adjusted Ebitda to ₹760 crore) and FY25E Ebitda to ₹470 crore (down 31 percent and adjusted Ebitda to ₹1,500 crore) and reduced our target price to ₹1,120″, JM Financial.
Geoit Financial Services: Meanwhile, Geojit downgraded the stock to “hold” and revised its target price to ₹941, indicating a potential of 57 percent
“The RBI regulations are expected to have a limited impact on the company’s performance as Paytm’s lending partners have a relatively smaller share of unsecured loans. Moreover, we believe the company will be able to pass on the higher cost arising from the increased capital buffers to consumers. However, the exit of Berkshire Hathaway and the increase in risk weights affected the market sentiment leading to a decline in the share price. We are cautious about the company’s short to medium term outlook and, therefore, lower the rating on the stock for HOLD with a revised TP of Rs. 941 at 4.3x FY25E P/sales,” it explained.
Other brokerages
Morgan Stanley Rating: Equal Weight
Target Price: ₹830 | Above: 38 percent
JPMorgan | Rating: Downgraded to Neutral
Target Price: Revised to ₹900 (from ₹1,200 earlier) | Above: 50 percent
Goldman Sachs | Rating: Downgraded to Neutral
Target Price: ₹840 | Above: 40 percent
Jefferies | Rating: Saved Buy
Target Price: Revised to ₹1,050 (from ₹1,300 earlier) | Above: 75 percent
These ratings indicate a range of prospects for Paytm’s stock. While Morgan Stanley maintained an “equal weight” rating, JPMorgan and Goldman Sachs downgraded the stock to “neutral.” Jefferies, on the other hand, still has a “buy” rating but with a reduced target.
It is evident that recent developments or changes in Paytm’s strategic direction have prompted analysts from different firms to reassess their outlook on the company, resulting in various recommendations and target price adjustments. Investors may consider these perspectives as they make their own assessments and decisions.
Technical View
Om Mehra, Technical Analyst, SAMCO Securities
Paytm currently trades at ₹670. In 2023, the stock increased by almost 76% from a low of ₹527 to high of ₹998. The price recently fell from higher levels and retreated to 61.8% of the Fibonacci level. Furthermore, the stock has shown a rising wedge breakout, which is a bearish pattern.
The Relative Strength Index (RSI) is currently languishing in the oversold zone at 18. Furthermore, the MACD indicator indicates a slow reversal from current levels. Despite trading below key moving averages, the stock may experience consolidation after a sharp recovery, presenting a strategic rallying opportunity within the 600-620 support zone.
The broader market reflects an 8% rise in Nifty within a month, prompting a cautious stance, while mid-cap stocks could continue to outperform, poised for further upward momentum. Amidst this market flux, a shrewd approach involves monitoring the stock’s price at key support levels ₹600-620 for possible entry points.
Rohan Shah – Technical Analyst, Religare Broking Ltd
Paytm was in bearish grip after hitting the 52-week high of 998 levels and plunged around 35% on that. The sharp selling recently led the price to negate its higher and higher low formation on the weekly chart. In addition, the decline in today’s session registered a break of the rising trend, which is designed by connecting the significant lows. Furthermore, it slipped below its long-term moving average ie 200 DEMA, which suggests weakness in the overall trend. Going forward, a break below 650-640 would propel further selling pressure, taking the price lower to the 610-580 zone. In case of any rebound due to oversold positions, we believe the 700-725 zone will act as a critical resistance area.
Disclaimer: The opinions and recommendations made above are those of individual analysts or trading companies, and not of Mint. We advise investors to check with certified experts before making any investment decision.
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Published: 13 Dec 2023, 15:01 IST