Shares of One 97 Communications Ltd, the parent company of Paytm, fell nearly 5% in early trade, hitting an intraday low of ₹720.85, following Jefferies’ report highlighting concerns over reduced government incentives for UPI transactions. The stock has been under pressure after the government’s FY25 incentives for low-value UPI peer-to-merchant (P2M) transactions (below ₹2,000) were slashed by 50% to ₹15 billion, despite a 40% year-on-year increase in transaction volumes.
Jefferies maintained a ‘Hold’ rating on Paytm with a target price of ₹850, citing potential revenue and profitability headwinds due to the incentive cut. The brokerage noted that the reduction in incentives translates to a decline from 20 basis points (bps) to just 6 bps, which could significantly impact Paytm’s revenue from UPI transactions. If the company’s incentives drop proportionately, its adjusted EBITDA for FY25E could be 50% lower than previous estimates, while profit before tax (PBT) may decline by 15%. Additionally, Jefferies cut its FY26-27 earnings estimates by 20-30%, anticipating further revenue pressure.
Despite these concerns, the brokerage noted that Paytm could partially offset the impact if there is a shift to a merchant discount rate (MDR)-based charging model for larger merchants. However, this remains uncertain due to regulatory approvals and implementation challenges.
Separately, Motilal Oswal has also revised its target price for Paytm to ₹870 (earlier ₹950), maintaining a ‘Neutral’ stance. The brokerage highlighted gradual improvement in Paytm’s merchant business and expects an EBITDA breakeven by FY27, driven by a projected 24% compound annual growth rate (CAGR) in gross merchandise value (GMV) over FY25-27. It expects financial services to contribute 27% of total revenue by FY28E, up from approximately 20% in FY24. Motilal Oswal also pointed out cost control measures and reduced capex and depreciation expenses as key factors that could drive positive adjusted EBITDA by Q4FY25. However, it cautioned that macroeconomic challenges, potential moderation in UPI market share, and financial distribution business traction remain risks for the company.
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