PhonePe IPO: Will it be a rerating trigger for Paytm shares?

PhonePe IPO: Overseas brokerage firm Macquarie believes that the recent draft red herring prospectus (DRHP) filed by PhonePe can reshape the fintech valuation. PhonePe's valuations may act as a benchmark for its listed peers like One97 Communications Ltd (Paytm) in the coming days.

PhonePe has been scaling up its distribution of financial services business (loans, mutual funds, insurance etc) significantly in the past few years and overall share in revenues has gone up from 4 per cent in FY24 to 13 per cent in 1HFY26, said Macquarie in its note.

Further, rapid scale up of this business could have implications for Paytm in our view in terms of increased competition and possibly lower margins as nearly one-third revenue for Paytm comes from distribution business, said the brokerage. Reports suggest that PhonePe is eyeing to raise $1.5 billion by its initial offering, selling its 10 per cent stake at a valuation of $15 billion.

PhonePe latest valuation as per last transaction to General Atlantic in September 2025 and media reports is around $13-15 billion, roughly 60-90 per cent higher than Paytm's market cap despite being Ebitda negative (PayTM is EBITDA positive)," it said. "PhonePe's current revenues could be affected by 20-25 per cent due to change in regulations as per the DRHP."

Macquarie has listed multiple challenges for PhonePe from its DRHP including rent payments, real money gaming (RMG) and payment infrastructure development fund (PIDF) incentives, which have been discontinued or restricted. As of H1FY26, nearly 19 per cent of its revenue came from rents, RMG or RBI's PIDF.

PhonePe would trade at 37-43 times H1FY26 adjusted revenues (adjusted for no revenues from rent, PIDF and RMG) versus 19 times for Paytm. 

According to the updated DRHP of PhonePe, the promoters and existing investors including-WM Digital Commerce, Tiger Global and Microsoft Global Finance- will be offloading 5,06,60,446 equity shares from their stake.

One should note that PhonePe is one of the largest fintech companies in India offering a broad range of payment services to both consumers and merchants and has the largest UPI market share of more than 45 per cent as a third party application provider (TPAP).

Dependence on UPI incentives from the Government is additional 6 per cent of revenues (FY25) compared to 2 per cent for PayTM. Share-based incentives at Phone Pe are high, causing ebitda to be negative, said Macquarie. "PhonePe also makes revenues out of selling digital gold, which as a product, has been under scrutiny from the regulators," said the global investment banker.  

Paytm Q3 results & targets

One 97 Communications, the parent company of Paytm, posted a net profit of Rs 225 crore in the December 2025 quarter, against a loss in the year ago period. The fintech player reported a 20.02 per cent year-on-year (YoY) surge in the revenue from operations at Rs 2,194 crore.

Ebitda for the third quarter of the ongoing financial year came at Rs 156 crore, with ebitda margins coming at 7 per cent for the reported period. Contribution profit stood at Rs 1,249 crore, up 30 per cent YoY, with contribution margin improving to 5 per cent, led by higher payment processing margins and a rising share of financial services distribution revenue.

JM Financial and Investec have a 'buy' rating on Paytm with a target price of Rs 1,660 and Rs 1,550, respectively. YES Securities has an 'add' rating with a target price of Rs 1,300. Motilal Oswal Financial Services has a 'neutral' view on Paytm with a target price of Rs 1,275.