One97 Communications Ltd. (Paytm’s parent company) shares are the best-performing stocks in the Indian stock market in FY27. The share has risen almost 70% so far this financial year and is at more than a four-year high as investors react to better earnings, stronger payments performance and the possibility of a change in the economics of UPI transactions.
The stock is also up for the fifth consecutive month. In August alone, One97 Communications shares are up about 22%, making the stock the best-performing name in the futures and options segment during the month.
However, even with the massive recovery, the company has not recovered from its fall post-listing. The stock of One97 Communications is still around 24 percent lower than the IPO price of Rs 2,150.
I think investors are on the edge of asking whether the recent momentum can continue and the company can eventually return to or exceed its IPO price.
UPI MDR is A Potential Growth Catalyst
One of the biggest potential triggers for Paytm’s future earnings is a possible introduction of a merchant discount rate (MDR) on UPI transactions.
At present, UPI transactions do not carry a direct transaction fee for customers or merchants. However, payment platforms, banks and other participants incur costs associated with technology infrastructure, transaction processing, customer support, fraud prevention, and risk management.
The zero-MDR framework has been in place since January 1, 2020. Although the government has considered free UPI transactions to be a key part of India’s digital payments and financial inclusion system, payment companies have constantly argued that payment companies need a mechanism to recover the costs associated with processing transactions.
All these changes and proposals related to the legal framework for payments have raised expectations that UPI might eventually change.
In One97 Communications, a UPI MDR framework could potentially yield even more revenue from its large payments ecosystem.
Earnings on Paytm Stock Support Paytm stock
The UPI opportunity is not the only thing that has helped the stock. One97 Communications has also gained from a much bigger financial performance and increased UPI market share, and an increasing contribution from financial services business.
The company’s focus on operating leverage has also helped improve the economics of the business as its scale increases.
Paytm’s merchant-focused ecosystem is another important part of its strategy. It also has the Soundbox and other payment equipment to support the business (business-to-business relationship with merchants) and to expand in India’s digital payments market.
If transaction volumes, financial services and merchant monetisation continue to improve, the company could maintain the earnings momentum that has supported the recent share-price recovery.
Key Risks For Paytm Investors
Despite the strong rally, several risks could limit the stock's next move.
The time and structure of UPI MDR is still uncertain. In case a fee is eventually introduced, the actual rate may be lower than market expectations. The competitive environment might also determine how much Paytm can retain.
There is also a potential change in the company’s revenue mix. If UPI transactions start to create direct revenue, income from other merchant products and services could become relatively less important. Investors will need to determine whether new MDR revenue is incremental growth or partly substitutes existing monetisation streams.
Valuation is also a concern. After a 70% rise in FY27, expectations around future earnings and UPI monetisation have increased. Failure to deliver on those expectations could result in increased volatility.
Analysts Remain Divided
One97 Communications analyst views are mixed despite the company’s great performance.
According to Bloomberg data, 17 analysts have a buy rating, five recommend holding the shares, and one has a sell rating.
The consensus 12-month target price is around Rs 1,569, which suggests about 4% downside from the current level at the time of assessment. But the target range is wide. The highest target of Rs 2,200 indicates potential upside of about 35% and the lowest target of Rs 1,050 represents a potential decline of around 36%.
The broad range shows the uncertainty about the future growth of the company and UPI MDR.
How can Paytm regain IPO price?
One97 Communications has since recovered from its low, but the stock is still below the IPO price of Rs 2,150.
For the next phase of the rally, investors are likely to focus on several factors: the prospect of UPI MDR, earnings growth, payments market share, financial services expansion, merchant monetisation and competitive pressures.
The distinction between Paytm as a consumer-facing brand and One97 Communications as the listed company is also important for investors.
The longer-term sustainability of the rally will depend on whether what is now seen as the company’s improving business fundamentals can make the shares of Paytm more compelling now that it will have a higher value. With UPI economics likely to have an upshot in the future, Paytm should remain an interesting stock to watch on the horizon and investors still have to take into account the growth risk to investors and the risk of regulatory, competitive, and execution pressure.
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