Jefferies has maintained a ‘Hold’ rating on Paytm, with a target price of ₹850, as concerns over declining UPI incentives continue to weigh on profitability. The brokerage notes that the government’s incentives for low-value UPI peer-to-merchant (P2M) transactions (below ₹2,000) have been cut in half to ₹15 billion for FY25, despite transaction volumes rising by over 40% YoY.
This significant reduction in incentives translates to a drop from 20 basis points (bps) to just 6 bps, which could materially impact Paytm’s revenue from UPI transactions. If Paytm’s incentives decline proportionately, the company’s adjusted EBITDA for FY25E could be 50% lower than initial estimates, while profit before tax (PBT) could decline by 15%. Additionally, FY26-27 earnings estimates have been cut by 20-30% due to the potential revenue loss.
However, Jefferies notes that Paytm could mitigate this impact if there is a shift to a merchant discount rate (MDR)-based charging model for larger merchants. Such a move could stabilize revenue streams and improve profitability visibility, but uncertainty remains regarding regulatory approvals.
Paytm, operated by One 97 Communications Ltd., is India’s leading digital payments and financial services platform. The company has been a pioneer in mobile payments, UPI transactions, and merchant services. With a diverse portfolio that includes wallets, UPI, credit cards, and BNPL (buy now, pay later) services, Paytm continues to be a dominant player in India’s rapidly evolving fintech landscape.
