PhonePe IPO: Emkay Global flags 4 risks that investors should watch out
PhonePe IPO may face key risks including weak monetisation, revenue disruption, profitability pressure and expensive valuation, says Emkay Global
 "PhonePe IPO: Emkay Global flags 4 risks that investors should watch out")
PhonePe IPO key risks
With digital payments major PhonePe moving closer to its potential initial public offering (IPO), analysts are scrutinising the sustainability of its business model. In a recent note, analysts at Emkay Global Financial Services highlighted that while the Walmart-backed fintech commands unmatched scale in India’s payments ecosystem, several structural risks could weigh on investor sentiment ahead of its much-anticipated IPO.
Below are the key risks that investors should be cautious ahead of PhonePe IPO:
1. Massive user base, but weak monetisation
According to Emkay Global Financial Services, PhonePe’s biggest strength—its unparalleled consumer engagement—could emerge as a concern for investors. The platform processes an enormous share of India’s UPI transactions and has built a vast user base over the years. However, turning that engagement into meaningful revenue remains a challenge.
According to the Emkay report, PhonePe’s Draft Red Herring Prospectus (DRHP) shows the platform has 238 million monthly active customers transacting around 37 times a month. Despite this scale, revenue generation per user remains relatively low.
“PhonePe scaled up its consumer UPI business to create one of the largest consumer internet platforms in India… however the scale of engagement has not yet translated into revenue,” the brokerage noted.
Even with more than 300 million monthly active users (MAUs) and over 45 per cent UPI market share, the company’s revenue per user remains modest at ₹21.4 – one of the lowest among peers.
Notably, PhonePe’s consumer business contributed 61.9 per cent of revenue in H1FY26 vs 23.6 per cent for Paytm. Analysts at the brokerage believe this gap reflects the structural challenge of monetising UPI, where direct transaction fees are limited.
“Though PhonePe has increasingly pivoted toward merchant services to improve monetisation (revenue share increasing from 14.7 per cent in FY23 to 38.1 per cent in H1FY26), the transition is still underway and could take time to materially impact financial performance,” Emkay Global said.
By comparison, Paytm had a merchant business revenue share of 76.4 per cent in H1FY26. READ | Paytm vs PhonePe: Bernstein compares scale, monetisation, profitability
2. Revenue streams facing disruption
Another risk, as per the brokerage, lies in the quality and sustainability of PhonePe’s current revenue mix.
A portion of its earnings comes from segments that may not continue going forward. The Emkay report estimates that 18 per cent of PhonePe’s revenue in the first half of FY26 came from real-money gaming, rent payments and PIDF incentives.
“These segments will be discontinued and hence weigh on revenue growth,” the brokerage said.
This creates a near-term uncertainty around the company’s revenue trajectory. While PhonePe has been expanding newer verticals such as merchant services and loan distribution, the lost contribution from these segments could temporarily slow growth.
To offset this, PhonePe is aggressively scaling its lending distribution business. Emkay estimates that loan distribution contributed roughly 9 per cent of revenue in H1FY26, compared with nil in FY23.
With the segment growing rapidly, it could emerge as a key driver. However, lending distribution is also dependent on partnerships with financial institutions and regulatory conditions, adding another layer of uncertainty, it said.
3. Profitability concerns
Emkay Global pointed out that the most prominent concern for investors is profitability.
While PhonePe’s revenue is comparable to Paytm in recent periods, its earnings profile is significantly weaker due to higher costs. PhonePe’s high ESOP costs and depreciation expenses, Emkay noted, have resulted in a significant divergence in Ebit.
“While PhonePe’s H1FY26 Ebitda before ESOP (₹250 crore) is only marginally lower than Paytm’s (₹280 crore), PhonePe’s high ESOP costs at ₹1,810 crore (vs ₹65 crore for Paytm) and D&A expenses at ₹570 crore (vs ₹300 crore for Paytm) result in significant divergence in Ebit, ie -₹2,120 crore for PhonePe as against -₹90 crore for Paytm,” the brokerage said.
Employee stock compensation and technology investments have, thus, pushed expenses sharply higher.
4. Expensive valuation
Lastly, the brokerage believes valuation expectations could further complicate the picture. Reports suggest the fintech may seek a $13–15 billion valuation in the IPO.
“This implies a valuation ask of 18.7x H1FY26 annualized revenue (excluding discontinued business) versus Paytm’s at 9.8x,” Emkay said.
Considering the weak profitability and expensive valuations, the brokerage sees a favorable risk-reward for Paytm. It maintains a ‘Buy’ on Paytm stock with a share price target of ₹1,500.