Paytm drops 4% after approval of incentive for low-value UPI transactions

Paytm stock settled at ₹733.15, down 3.92 per cent from the previous day's close of ₹763.10 on the NSE

Shares of One97 Communications, the parent company of Paytm, dropped over 5 per cent to hit their intraday low of ₹718.20 per share on Thursday after the cabinet's approval of a ₹1,500 crore incentive scheme to promote low-value UPI transactions.

 

Under the 'Incentive Scheme for Promotion of Low-Value BHIM-UPI Transactions (P2M)', UPI transactions valued at less than ₹2,000 and made to small merchants, the acquiring and other involved stakeholders will be eligible for an incentive at the rate of 0.15 per cent per transaction value for FY25.

 

On Thursday, the stock settled at ₹733.15 per share, down 3.92 per cent from the previous day's close of ₹763.10 per share on the NSE.  

According to the National Payments Corporation of India (NPCI), a merchant discount rate (MDR) up to 0.30 per cent of the transaction value is applicable for UPI person-to-merchant (P2M) transactions. Since January 2020, the MDR has been waived for transactions made using RuPay Debit Cards and BHIM-UPI to encourage digital payments.

 

Through this scheme, the government aims to promote the BHIM-UPI platform and achieve the target of 200 billion total transactions in FY25.

 

In addition, domestic brokerage firm Motilal Oswal Financial Services (MOFSL) slashed the stock's target price to ₹870 from ₹950, while maintaining a 'neutral' rating. The brokerage firm remains watchful of the challenging macro-environment, traction in the financial distribution business, and near-term UPI market share.

 

However, it states that Paytm's strategic focus on the financial services business and cost optimisation should boost profitability, with the financial business contributing 27 per cent of revenue by FY28E.

 

"Leveraging its merchant network, the company remains focused on scaling up its loan distribution, supported by strong lender partnerships. Cost reductions and an estimated revenue Compound annual growth rate (CAGR) of 26 per cent from FY25-27E will enable Paytm to achieve Earnings before interest, taxes, depreciation and amortisation (Ebitda) breakeven in FY27E. We expect the company to gain traction in new customer onboarding and grow its MTU base, which will enable healthy cross-selling, while growth in the merchant business will remain the key profitability driver in the near term," MOFSL said.

 

Additionally, with the Security Exchange Board of India (Sebi)’s recent approval for Paytm Money to enter investment insights and research services, the company has an opportunity to diversify into wealth management, potentially unlocking a new source of fee-based income.

 

According to media reports, global brokerage firm Jefferies has maintained a 'hold' rating on the stock, with a price target of ₹850 per share.

 

In its note, the foreign brokerage said the government's incentive of ₹1,500 crore for low-value UPI P2M transactions is half of last year's and, thus, negative for the company. It expects the payment aggregator's incentives to fall from 20 basis points to 6 basis points, adding that if the company's incentives fall proportionately, its FY25 adjusted Ebitda could be 50 per cent below estimates.