Here are three reasons:
1) Digital payments as a toll road Paytm’s core payment processing business functions as a toll road in India’s fast-growing digital payments ecosystem, earning a small fee for every transaction routed through the platform, Investec said. The brokerage expects Gross Merchandise Value (GMV) to grow at a CAGR of 25% during 25-28E, supported by increasing adoption of credit cards, RuPay credit cards on UPI and lines of credit linked to UPI.
Increasing credit penetration is likely to lift net payment margins from 3.8 bps in FY25 to 4.6 bps in FY28, translating into a strong 32% CAGR in net payment processing revenue in FY25-28E.
The brokerage added that while the company faced a major regulatory setback in FY25 when the RBI restricted Paytm Payments Bank’s operations, quick and proactive mitigation measures helped secure the key payments franchise.
2) Merchant leadership
Paytm’s strong footprint remains a key growth driver, with over 50% offline and around 10% market share in soundbox/POS devices, and 15-20% share in online merchant payments.
This size supports steady, recurring device subscription revenue, which is expected to grow at a CAGR of 22% in fiscal 25-28E. The large trading base also enables meaningful cross-selling of credit products, with revenues from financial services distribution expected to grow at a CAGR of 31% and account for 42% of net revenues in FY28E.
3) Operating leverage
Heavy investment in vendor acquisition saw employee costs – approximately 60% of indirect costs – grow at a CAGR of 23% in FY21-25.
With the bulk of vendor acquisition behind us, employee cost growth is expected to slow sharply.
As a digital platform, Paytm is also likely to benefit from technology-driven efficiencies of scale, with indirect costs (excluding ESOPs) expected to grow at a CAGR of 11% in FY26-28E, well below the expected CAGR of 23%.
This operating leverage is expected to increase EBITDA margin to 24% of net sales in FY28, compared to around 8% in H1FY26.
Valuation and prospects
The target price of Rs 1,550 is based on a discounted cash flow (DCF) valuation, which implies an EV/EBITDA of 37x FY28E.
Price trend of Paytm shares
Paytm’s latest setback comes amid market concerns surrounding the Payment Infrastructure Development Fund (PIDF), a scheme aimed at boosting the deployment of digital payments infrastructure.
While there is no clarity on the extension of the scheme, Paytm said in an exchange filing on Friday that the amount of incentive was Rs 128 crore for the six months ending September 30, 2025. It said that there is currently no announcement by the Reserve Bank of India (RBI) or other authorities on extension or replacement of this scheme, and hence the current scheme will not be extended or replaced.
“We expect to significantly offset the impact over time through a combination of increased revenues and more targeted sales efforts,” the filing said.
Paytm stock is in a consolidation phase and has fallen 13% in the last three months. The stock has fallen 20% from its 52-week high of Rs 1,381.80 and is currently trading at Rs 1,155.
The stock has fallen below its 50-day simple moving average (SMA) of Rs 1,301.6, while holding its 200-day SMA of Rs 1,115.8. Despite the decline, the one-year return stands at 41, outperformance over Nifty’s 8% and BSE Sensex’s 7% in the same period.
Risks
Investec said key risks to its investment thesis include unforeseen regulatory developments, increased competitive intensity and pressure on asset quality in merchant and consumer lending.
Disclaimer: (Disclaimer: The recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of The Economic Times.)
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