Leading brokerages have issued positive revised price targets for One 97 Communications Ltd (Paytm) and Pine Labs Ltd following the introduction of Merchant Discount Rate (MDR) charges on specific Unified Payments Interface (UPI) transactions. The National Payments Corporation of India (NPCI) announced that UPI Person-to-Merchant (P2M) transactions exceeding Rs 2,000 will now attract an MDR of up to 0.4%, effective October 15.
New UPI MDR Charges: A Game Changer
The new MDR structure marks a significant shift for the UPI ecosystem, moving towards a commercial revenue model for payment service providers. Previously, many of these transactions were free, relying on government subsidies. This change is expected to provide a contractual, recurring, and value-scaling revenue stream, enhancing the structural resilience and self-sustainability of the payment business.
Importantly, Paytm has clarified to stock exchanges that no charges will be levied on customers for UPI payments, ensuring they remain free for users.
Brokerage Outlook for Paytm
- CLSA Upgrade: Foreign brokerage CLSA has upgraded its recommendation on Paytm stock from 'Reduce' to 'Hold'. It set a target price of Rs 1,600, indicating a potential upside of 7.5%.
- Emkay Global's Bullish Stance: Emkay Global maintained a 'BUY' rating on Paytm, significantly increasing its target price to Rs 2,400. The brokerage estimates that while 67% of P2M transactions by value are above Rs 2,000, approximately 35% of Paytm's UPI P2M Gross Merchandise Value (GMV) will be MDR-eligible, factoring in category-specific caps.
Pine Labs Also Sees Positive Revisions
Pine Labs also received a positive assessment from Emkay Global, which maintained its 'BUY' rating and raised the target price to Rs 230. For Pine Labs, Emkay projects UPI P2M Gross Transaction Value (GTV) of Rs 3 lakh crore by FY28. Of this, an estimated 86% by value is expected to fall above the Rs 2,000 threshold, resulting in an MDR-eligible GTV of Rs 2.58 lakh crore.
Revenue Projections
Emkay Global anticipates substantial new revenue generation for both companies. The brokerage assumes Paytm will retain 10 basis points (bps) and Pine Labs 6 bps of the MDR pool, blended across various slabs. This could yield estimated FY28 UPI MDR revenue of Rs 1,120 crore for Paytm and Rs 155 crore for Pine Labs.
"The more important signal, in our view, is that UPI acquiring now carries a commercial revenue model that is contractual, recurring, and scales with value, in place of a discretionary annual subsidy. This will make the payment business structurally self-sustaining, making the business model much more resilient," Emkay Global stated.
The introduction of these MDR charges is expected to strengthen the financial models of payment service providers, fostering a more robust and predictable revenue environment within India's rapidly expanding digital payments landscape.