Shares of One 97 Communications Ltd (Paytm) saw a notable increase of over 7% in Wednesday's trading session, reaching Rs 1,856.50. This surge followed the implementation of Merchant Discount Rate (MDR) charges on Unified Payments Interface (UPI) transactions exceeding Rs 2,000. Conversely, Pine Labs Ltd experienced a significant decline, with its stock falling almost 8% to Rs 178.80.
Paytm Poised for Revenue Growth from UPI MDR Charges
Financial analysts at JM Financial upgraded their target price for Paytm to Rs 2,150, up from Rs 1,950, citing the new UPI MDR charges. The firm noted that the recently notified MDR rates are materially higher than their initial models, despite broader carve-outs than anticipated. JM Financial adjusted its eligible-GMV overlay for Paytm to 20% from 30%, projecting substantial incremental revenue and EBITDA growth.
According to JM Financial's estimates, Paytm could see incremental revenues of Rs 210 crore in FY27E and Rs 470 crore in FY28E, alongside incremental adjusted EBITDA of Rs 140 crore and Rs 440 crore for the respective fiscal years. These figures represent a 9.8% and 19% increase over their previous no-MDR estimates, with margins expected to improve by 110 basis points and 270 basis points.
Pine Labs Shares Decline Despite Positive Outlook
Despite Emkay Global raising its target price for Pine Labs by 20.9% to Rs 230, implying an 18.1% upside, the company's shares dropped. The brokerage had earlier suggested a target of Rs 2,400 for Paytm, highlighting the operating leverage potential for both companies as the MDR stream accrues on existing rails and merchant relationships.
Emkay Global acknowledges that while near-term earnings might appear optically rich, multiples are expected to compress as operating leverage takes effect. They estimate a robust EBITDA CAGR of 32.6% for Paytm and 29.8% for Pine Labs between FY28-32E, with PAT CAGR projections of 27.8% and 36.4% respectively.
Market Uncertainty and Key Risks Remain
The National Payments Corporation of India (NPCI) has yet to specify the distribution mechanism for the MDR pool across the value chain, which JM Financial identifies as a major risk factor in their estimates, particularly regarding the 20% share in MDR assumption. Emkay Global also pointed out key risks including the eventual interchange-sharing formula, potential value leakage to merchants through competitive discounting, and the elasticity of transactions at the Rs 2,000 threshold.
In related news, shares of One MobiKwik Systems Ltd also experienced a minor dip, closing down 1.95% at Rs 196.95 apiece.