One 97 Communications, the parent company of fintech major Paytm, is well positioned for non-linear earnings per share (EPS) growth, driven by the potential implementation of a merchant discount rate (MDR) on Unified Payments Interface (UPI) transactions, according to brokerage firm Bernstein.
Bernstein expects Paytm's annualised EPS to rise from Rs 14 in FY27 to Rs 103 by FY30, with the introduction of MDR on UPI emerging as a potential near-term catalyst.
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Beyond MDR, strong growth in merchant lending and improving operating leverage are expected to support earnings growth. The brokerage also sees the emerging consumer franchise as a source of additional upside, offering the potential to deliver more than 20% upside to its base-case estimates.
According to Bernstein, the implementation of MDR on UPI transactions appears imminent and could provide a meaningful boost to earnings, with an estimated pre-tax profit (PBT) impact of Rs 10 billion in FY28.
“While investor concerns around potential framework tweaks and changes in competitive intensity remain, we believe most of the estimated upside should accrue to earnings as long as MDR is implemented, with limited leakage risk,” Bernstein said.
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Beyond the potential MDR-led gains, Bernstein highlighted the continued strength in Paytm's merchant lending business. Revenue from financial services grew around 48% year-on-year in the latest quarter, reflecting strong momentum in the segment.
The brokerage expects operating leverage to further support profitability, with EBITDA growth likely to outpace revenue growth.
Bernstein's base-case estimates project Paytm's EPS to reach Rs 75 by FY28. However, consumer credit remains a key source of additional upside.
The company has reported a strong improvement in consumer transaction users (TUs) in recent quarters and has made initial progress with the reintroduction of its Buy Now, Pay Later (BNPL) product.
Bernstein believes a scale-up in BNPL offerings, along with cross-selling of other consumer credit products, could provide more than 20% upside to its base-case estimates.
The brokerage has made a few changes to its forecasts, including factoring in a delay in MDR implementation to FY27, higher financial services revenue and slightly higher growth in indirect expenses. However, these adjustments leave its FY29 and FY30 EPS estimates broadly unchanged.
Bernstein has maintained its ‘Outperform' rating on Paytm shares with an unchanged target price of Rs 2,200 apiece, implying an upside potential of around 28% from Tuesday's closing price.
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