Paytm, Pine Labs share price targets as MDR charges on UPI above Rs 2,000 introduced

A couple of brokerages gave thumbs up to One 97 Communications Ltd (Paytm) and Pine Labs Ltd after a Merchant Discount Rate (MDR) of up to 0.4 per cent on UPI Person-to-Merchant (P2M) transactions exceeding Rs 2,000 has been announced.  The NPCI circular would be effective from October 15 and will generate additional revenue for Paytm's merchant business as many of the payment transactions that were free earlier.

No charge is levied on customers for UPI payments, which shall continue to remain free of charge for them, Paytm informed stock exchanges.

Foreign brokerage CLSA has raised its recommendation on the Paytm stock to 'Hold' from 'Reduce' earlier, setting a target of Rs 1,600 on the stock, implying 7.5 per cent potential upside.

"While 67 per cent of the P2M transactions by value are above Rs 2,000, we expect a lower eligible GMV. The more important signal, in our view, is that UPI acquiring now carries a commercial revenue model that is contractual, recurring, and scales with value, in place of a discretionary annual subsidy. This will make the payment business structurally self-sustaining, making the business model much more resilient," Emkay Global said.

"The present value of this stream adds Rs 43,400 crore and Rs 5,120 crore to our valuations for Paytm and Pine Labs, increasing our target to Rs 2,400 and Rs 230, respectively. We maintain BUY on both Paytm and Pine Labs," Emkay said.

For Paytm, UPI P2M constituted 85 per cent of GMV, of which 35 per cent by value is MDR-eligible. The reason for keeping only 35 per cent of the GMV eligible for MDR, despite 67 per cent of the industry value being constituted for above-Rs2,000, is to factor in select categories that have caps on MDR.

For Pine Labs, Emkay estimated UPI P2M GTV of Rs 3 lakh crore in FY28 (12 per cent of DITP GTV), of which 86 per cent by value sits above the threshold, giving MDR-eligible GTV of Rs 2.58 lakh crore (10 per cent of DITP GTV). Both ratios are held flat through the forecast period, with no migration of high-ticket payments to alternative rails assumed, Emkay said.

"We assume Paytm retains 10bps and Pine Labs 6bps of the pool—25 per cent and 15 per cent, respectively—blended across the 0.4 per cent headline slab, the flat Rs 5 categories, and the 0.02 per cent capital-market slab, yielding FY28E UPI MDR revenue of Rs 1,120 crore and Rs 155 crore," Emkay said.