Jefferies initiates coverage on Pine Labs with a target price of Rs 300. Here’s why it sees a 28% increase

Citing the company’s positioning at an earnings inflection point, global brokerage firm Jefferies has initiated coverage on Pine Labs with a ‘Buy’ rating and a target price of Rs 300. The broker highlighted that Pine Labs is expected to benefit from operating leverage, improved profitability and growth in the digital payments segments over the next three years.Impressively, the brokerage firm has highlighted a 28% upside potential from Tuesday’s closing price.

In its report, Jefferies forecast a compound annual growth rate (CAGR) in revenue between FY25 and FY28, supported by the expansion of Pine Labs’ Digital Checkout Point (DCP) network, increasing digitalization of commercial payments and strong momentum in the affordability segment, which includes credit card EMI offerings and prepaid card solutions.The report further noted that contribution margins are expected to remain stable between 76% and 78%, while operating efficiencies could lift adjusted EBITDA margins from 15% in FY25 to 27% in FY28.

Jefferies stated that Pine Labs could potentially turn from a net loss of Rs1.5 billion in FY25 to a net profit of Rs7 billion in FY28, assuming current growth and efficiency trends continue.

The report also notes that the company’s investments in working capital, including programs such as Instant Cashback, are expected to continue as part of its business generation strategy.

The brokerage highlighted that India’s digital commerce ecosystem is expanding, with the number of merchants accepting digital payments increasing from 45 million to 63 million in the last five years. Payments to merchants have also increased significantly, from Rs 29 trillion to Rs 117 trillion. According to Jefferies, Pine Labs is well positioned to capitalize on this momentum due to its presence across the digital payments value chain, including point-of-sale EMI, closed and semi-closed loop cards and DCPs.

It was also highlighted that Pine Labs has a 70-75% market share in closed/semi-closed loop cards, a 90-95% share of EMI in physical stores, and 15-17% by network and 20-22% by value in the DCP segment. The company also operates in international markets such as Southeast Asia, the Middle East, Australia and the US for the issuance of prepaid cards and gift cards. Jefferies highlighted an expected 30% CAGR in gross transaction value (GTV) over three years for Pine Labs’ DCP and partnership business.

The brokerage believes that Pine Labs’ valuation has the potential to revalue if it delivers consistent growth and improvement in profitability over the forecast period.

At around 10.50 am today, shares of Pine Labs were trading 4.4% higher at Rs 244.30 on the BSE.

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