Paytm Share Price: Could New UPI Charges Boost Paytm’s Earnings, and Should You Buy?
The shares of this large cap company majorly engaged in the business of providing digital payment ecosystem for consumers as well as merchants, were in focus after the introduction of UPI charges.
With the market capitalization of Rs. 1,11,819 Crores, the shares of One 97 Communications Ltd reached an intraday high of Rs. 1,856 per share rising nearly over 7 percent from its previous day close of Rs. 1,731 per share and is trading at a P/E of 138 whereas industry P/E stands at 76.6
New UPI Charges Create a Fresh Revenue Opportunity
The introduction of Merchant Discount Rate (MDR) on certain UPI transactions can create a new source of income for Paytm’s merchant arm. In the new scheme, all Person to Merchant (P2M) UPI transactions greater than ₹2,000 will have an MDR of 0.4%. At the same time, consumers will still be making free UPI payments. The new development can enable Paytm to earn from its merchant transaction volume which earlier did not generate any such income.
Merchant Business Could See Higher Monetisation
The potential impact may be even greater because the charges introduced will be only relevant to eligible merchant transactions. Person-to-Person (P2P) transactions will still be free, and small merchants falling under the P2PM category will continue to be shielded from MDR charges. Therefore, the newly-created monetisation strategy will only benefit eligible merchant transactions and not the whole of the UPI system. According to Paytm, this latest development will earn revenues from merchant transactions that have been transacted at no cost until now, and consumers will keep using UPI payment services for free.
Earnings Estimates See an Upgrade
The new MDR regime has resulted in higher earnings estimates for Paytm, with Jefferies upgrading its FY28-29 earnings estimates by 10-12%, taking into account a 40 basis points revenue pool post exemptions, competitive pricing, and other considerations. This suggests that the brokerage anticipates the new monetization opportunity to make a considerable contribution to the earnings of Paytm over the next few years. This earnings estimate also takes into consideration any potential constraints which might affect the revenue gain from the new MDR regime.
FY27 Profit Estimate Also Gets a Boost
The earnings effect is not likely to be limited only to the longer term. Jefferies increased its FY27 earnings forecast by 18% on the basis of a small upside effect on account of the MDR structure changes. This means that the new monetisation avenue is likely to add to Paytm’s bottom line quite early once the charges kick in. Although the upside may not be substantial at first, it serves as yet another earnings lever for the company’s payment business.
Jefferies Raises Paytm Target Price
Alongside the earnings revisions, Jefferies also kept its Buy recommendation on Paytm but hiked its price target to ₹2,150 per share forming an upside potential of around 24 percent from CMP. The updated price target takes into consideration the brokerage firm’s revised earnings estimates after considering the effect of the new UPI MDR framework on Paytm’s business. Moreover, Jefferies has increased its price target on Pine Labs to ₹235 per share, but the main point of focus is Paytm’s monetisation and earnings.