By Q1, Paytm should be back on track in lending distribution business: Rahul Jain

Rahul Jain, VP-Research, Dolat Capital, says the Paytm development “is more to do with the RBI directive on risk weights increase on the lower-ticket item loan. That is going to take an impact of close to 5% of lending revenue in this quarter, and close to 15-16% impact on the loan distribution that they do on a QOQ basis. However, since they are now focusing on higher-ticket loans, part of this impact, which they may experience in Q3 and Q4, would start to get mitigated from getting into higher-ticket loans within the personal loan and merchant loan portfolio. We think by Q1, they should be back on the track in terms of overall robust growth performance in the lending distribution business.”

How are you reading the developments on Paytm?
Clearly, if we look at some of the data that they provided in terms of what has been the performance of this sub-50,000 loan portfolio, it looks like this is a preventive measure rather than any problem per se in the performance of that book.

This is more to do with the RBI directive on risk weights increase on the lower-ticket item loan. That is going to take an impact of close to 5% of revenue in this quarter, in our estimate, for the lending revenue and close to 15-16% impact on the loan distribution that they do on a QOQ basis.


However, since they are now focusing on higher-ticket loans, part of this impact, which they may experience in Q3 and Q4, would start to get mitigated from getting into higher-ticket loans within the personal loan and merchant loan portfolio and that is why we think at best by Q1, they should be back on the track in terms of overall robust growth performance in the lending distribution business.

We see this as a temporary 3-6-month kind of an impact, which kind of slows down the growth by 3-4% on an annualized basis but still it would compound at more than 30% on an overall revenue growth, which does not disturb our overall thesis wherein we remain positive on the stock.

What is your outlook in terms of how the stock market has reacted to this? In terms of the concerns that have been flagged off, is it justified or perhaps a little bit too rapid in reaction?
After this outlook which they have shared, there can be a mixed opinion. Some set of people might think that this is going to be a perceived problem for much longer, and they may thus see a greater deterioration in their own estimates and thought process and that is why the reaction. I would say that given the kind of traction they have seen historically on their growth across categories, there is no reason why this pain should be beyond 3-4 months.

That is why I would call it more of an overreaction. In the next couple of days, we could see a meaningful recovery from what we saw today's low from that point.