Paytm shares: Bernstein sees 38% rise; says PhonePe leads in users, lags on profitability

Bernstein’s recent report on the digital payments sector highlights the comparison between IPO-bound PhonePe and its listed peer One 97 Communications Ltd (Paytm), focusing on areas such as scale, monetisation, profitability, and factors that may set them apart as they develop further.

According to Bernstein, PhonePe holds a commanding position with respect to the consumer segment, boasting approximately three times the active consumer base and nearly nine times the scale in consumer total payment value (TPV) compared to Paytm.

On the merchant front, it notes that while the registered merchant numbers are similar, Paytm maintains an advantage with a larger base of installed payment devices and a marginally higher merchant TPV. Furthermore, Paytm is cited as being significantly ahead in lending, both to consumers and merchants, disbursing loans at a rate roughly 2.5–3 times greater than PhonePe.

In terms of monetisation, Bernstein finds that reported revenues for the first half of FY26 are similar for both companies. However, after adjusting for non-recurring payment categories, such as rent and real-money gaming, and considering the termination of RBI’s PIDF incentives, Paytm’s revenue is around 20 per cent higher.

Shares of Paytm settled at Rs 1,172 on Monday, rising 1.62 per cent for the day. The total market capitalization of the company stood close to Rs 75,000 crore. The stock is up 78 per cent from its 52-week low at Rs 651.50 hit in March 2025. However, the stock is down 16 per cent from its 52-week high at Rs 1,381.75, hit in December 2025.

Despite PhonePe having nine times the consumer TPV, its consumer revenues are nearly 60 per cent higher than Paytm’s. In contrast, Paytm’s merchant revenue is about twice that of PhonePe, although this gap has lessened over time. Bernstein attributes this to Paytm’s stronger penetration in lending and a higher share of more profitable products within its TPV, concluding that the path to monetisation is currently clearer on the merchant side.

Bernstein addressed profitability, stating that Paytm currently operates around breakeven, whereas PhonePe remains loss-making at the profit before tax (PBT) level. The fixed costs for both companies are similar, but PhonePe’s higher ESOP expense, which stands at about 40 per cent of revenue, is a key factor in its lack of profitability at the PBT level.

Looking ahead, Bernstein suggests that a major point of differentiation for both companies is likely to stem from consumer credit offerings, such as Buy Now, Pay Later (BNPL) products. In this domain, PhonePe possesses the advantage of a larger consumer base, while Paytm benefits from prior experience in scaling up its own BNPL product, PostPaid.

The analysis by Bernstein underscores that while PhonePe and Paytm are closely matched across several dimensions, their strengths diverge between consumers and merchants, as well as in their approaches to monetisation and profitability. The evolution of consumer credit products may ultimately play a pivotal role in determining their future trajectories in the sector.

In its clarification, Bernstein has said that it has no 'buy' or 'sell' rating on PhonePe shares and the company has already filed its draft papers with market regulator Sebi. However, the overseas brokerage firm has an 'outperform' rating on Paytm shares with a target price of Rs 1,600, suggesting nearly 38 per cent upside potential.