Paytm shares jump 10%, price target raised amid talk of UPI fee

Shares of One97 Communications Ltd, the parent company of digital payments giant Paytm, surged more than 10% on Monday, reaching a new 52-week high on the NSE. Global brokerage Bernstein kept its 'outperform' rating on the company and raised its price target significantly to Rs 2,200 from Rs 1,500, suggesting a potential upside of nearly 40% from the current level.

The broker highlighted the potential impact of a Merchant Discount Rate (MDR) on UPI transactions from April 2028 as a major driver behind its decision, although it cautioned that increased competitive intensity in merchant acquiring could potentially lead to lower realized economics than published rates.

Bernstein anticipates that a UPI MDR fee could boost Paytm's net payments margins by 3-4 basis points, potentially resulting in a 30% increase in the company's earnings per share for FY30 compared to its previous forecasts. On the day of the announcement, Paytm's stock opened at Rs 1,445 and climbed to an intraday high of Rs 1,598.5 before closing at Rs 1,584.1, marking a 9.9% increase from Friday's closing price of Rs 1,441.6.

Other fintech firms such as OneMobikwik Systems Ltd and AvenuesAI Ltd (formerly Infibeam Avenues Ltd) also experienced gains, surging by 3% and 2% respectively. Paytm is the third-largest app in terms of UPI transactions, handling 1.8 billion UPI transactions worth Rs 1.9 lakh crore in June alone. However, it trails behind PhonePe (10.5 billion transactions) and Google Pay (7.4 billion transactions).

UPI transactions have not yet been subject to an MDR, but the Indian government has been subsidizing UPI payments up to Rs 2,000 made to small merchants. This subsidy, which accounts for 0.15% of the transaction value, is shared among banks, payment service providers, and third-party app providers, with the central government spending Rs 8,730 crore from 2021-22 to 2024-25, constituting just 11% of the total costs incurred by the payment industry.

In a post-earnings call, Paytm's Founder and CEO Vijay Shekhar Sharma expressed optimism about the potential MDR, stating that the company's business model would remain unchanged and the new fee would ultimately benefit both MDR and non-MDR merchants.