'If Paytm reaches 50% of scale': What Emkay says on credit line on UPI relaunch

One 97 Communications (Paytm) has relaunched its Postpaid product as a credit line (CL) on the UPI platform in partnership with Suryoday Small Finance Bank. The relaunch comes after regulatory action by the Reserve Bank of India (RBI) on small-ticket personal loans, which, combined with operational challenges regarding Paytm Payments Bank Ltd (PPBL), led to the discontinuation of the earlier Paytm Postpaid offering.
Emkay Global commented on the prior performance of Paytm's Postpaid product, stating, that at its peak Paytm Postpaid volume was Rs 3,000 crore per month, which resulted in estimated annualised Ebitda of Rs 250-350 cro.  The brokerage considers the product's return a significant development for Paytm's earnings prospects.

The relaunch takes advantage of recent NPCI guidelines, which permit the application of Merchant Discount Rate (MDR) on credit line transactions via UPI for certain transaction types. Emkay Global remarked, "With NPCI guidelines allowing MDR on credit lines on UPI for a certain set of transactions, Emkay Global expect the unit economics to be the same as or slightly inferior to the erstwhile product’s."

That said, Emkay Global believes merchant awareness for credit line on UPI is low as Paytm has started with a small set of users. Due to this and the relatively smaller bank partner, Emkay Global said it would watch the company’s scale-up before incorporating this development into our estimates. Adoption and awareness among merchants remain in the early stages, and future scale-up will be closely monitored, it said.

On potential financial impact, the brokerage stated, "If Paytm reaches 50% of the erstwhile scale by Q4FY26, Emkay Global expects 10.4 per cent increase in FY27E Ebitda." This estimate underscores the significance of achieving scale with the new product iteration.

Emkay Global expressed confidence in Paytm's broader business execution, noting, "Emkay Global maintain a positive stance on the company, considering its strong execution in merchant payments and loan distribution, along with various optionalities." The firm also reaffirmed its recommendation, saying, "Emkay Global reiterate BUY on the stock, with DCF-based target price of Rs1,350."

Discussing user trends and market potential, Emkay Global stated, "While Emkay Global expect the savvy consumer to stay with the RuPay credit card for UPI, CL on UPI represents a large incremental opportunity given India’s small credit-cards base." The credit line on UPI is available for in-store QR payments, online checkouts, and bill payments, with repayments restored on a billing-cycle basis.

Looking ahead, the brokerage highlighted various strategic options: "While Emkay Global watch its scale-up, Emkay Global believe there are various optionalities—scale-up in RuPay credit cards, bringing back wallet, and MDR on UPI for larger merchants." Furthermore, "Given this and the strong growth momentum, valuations at 32x FY28E EV/Ebitda are attractive. Emkay Global retain BUY with DCF-based TP of Rs1,350."