In response to brokerage downgrades, Paytm lowers its circuit by 20% as the business plans to reduce its small-ticket lending.

Shares of One97 Communications, the progenitor entity behind the digital payment application Paytm, witnessed a precipitous decline in today's market session, plunging to the lower circuit limit of 20%, reaching ₹650.45 per share. This abrupt downturn ensued following the company's proclamation of intentions to curtail small-scale loans in the wake of regulatory modifications.

Per analysts, the company's resolve to divert attention away from diminutive Buy Now, Pay Later (BNPL) loans will exert a substantial influence on its overarching loan originations through the platform. This is particularly noteworthy since this segment constitutes over 50% of the total disbursements.

"In response to recent macroeconomic developments and regulatory directives, in consultation with lending collaborators and aligned with its ongoing commitment to fostering a robust portfolio, the company has reconfigured the origination focus on sums less than ₹50,000. This primarily encompasses the postpaid loan product, which will now occupy a diminished role in its loan distribution enterprise moving forward," the company articulated in an exchange filing on Wednesday.

Nevertheless, Paytm avowed that merchant loans will persevere as a central focus. Given their provision for business purposes to small-scale merchants, these loans remain unscathed by recent regulatory guidance. The company is now pivoting towards higher-value personal and merchant loans, targeting clientele with lower risk profiles and high creditworthiness through collaborations with major banks and non-banking financial companies (NBFCs).

A spokesperson from Paytm remarked, "As the lending distribution business matures, we discern fresh avenues for expansion in the form of offering high-value personal and merchant loans. Our focus will persist in originating a high portfolio quality for our lending partners, coupled with stringent adherence to risk and compliance. The traction and acceptance garnered by our loan distribution business bolster our belief that this expansion will further catalyze our business growth."

Subsequent to this development, brokerage entities have revised their target prices for the company's stock. Global brokerage giant Goldman Sachs downgraded the stock, shifting its rating from 'buy' to 'neutral,' revising the target price to ₹840 per share from the previous ₹1,250 per share.

Similarly, Jefferies recalibrated its target price to ₹1,050 from ₹1,300 per share but retained a 'buy' rating. Bernstein also lowered its target price to ₹950 from ₹1,100, as reported by CNBC-TV18.

Conversely, domestic brokerage firm Motilal Oswal maintained a 'buy' rating with a target price of ₹1,025 per share. The brokerage underscored Paytm's strategic pivot towards higher-value personal and merchant loans, accentuating robust demand and effective risk management. For higher-value loans, it will continue to receive distribution commission but will forego any collection commission.

Motilal Oswal highlighted the company's shift away from postpaid (BNPL) and personal loans below ₹50,000 to avert potential asset quality issues amid mounting concerns in these segments.

Additionally, the brokerage pointed out that the company has distanced itself from specific customer cohorts in the postpaid segment and will diligently monitor risks and asset quality metrics. It aspires to broaden its scope to other users once macroeconomic indicators exhibit improvement.

At 10:45 AM, the stock was trading with a decline of 18.88% at ₹659.50 per share.