One97 Communications shares jumped nearly 9% after brokerage Bernstein raised its target price to ₹2,200. This is the first time a major brokerage target has crossed Paytm’s IPO price of ₹2,150. The upgrade is driven by expectations that potential charges on UPI transactions could improve the company's long-term profit margins.
Shares of One97 Communications, the company behind Paytm, rose nearly 9% in intraday trading on Monday following a significant upgrade by brokerage firm Bernstein. The brokerage lifted its target price for the stock to ₹2,200 from the previous ₹1,500. This development is notable as it marks the first time a brokerage target has exceeded Paytm’s initial public offering (IPO) price of ₹2,150, which was set during its market debut in July 2021.
The optimism from Bernstein is primarily tied to the potential introduction of a Merchant Discount Rate (MDR) on UPI transactions. MDR is a fee that merchants pay for accepting digital payments. While UPI transactions have historically been free for consumers and merchants in India, the brokerage has updated its base-case financial projections to include these charges starting from the financial year 2028.
Bernstein expects that the introduction of even a moderate fee on a specific segment of transactions could boost Paytm’s net payments margins by 3 to 4 basis points. A basis point is a standard unit of measure in finance, where 100 basis points equal 1 percentage point. By including this revenue stream in its long-term outlook, the firm projects a 30% increase in Paytm’s earnings per share by the financial year 2030.
Regulatory Context and Risks
Investors should note that the introduction of UPI charges remains a subject of regulatory discussion rather than a confirmed policy. While the government has indicated that any charges would apply only to specific merchant transactions above a certain value—and not to consumers—the exact timeline and fee structure have not been finalized. The Ministry of Finance has clarified that such measures are intended to help payment providers recover costs related to infrastructure and security investments.
Beyond regulatory uncertainty, Paytm faces intense competition in the merchant acquiring business. While the potential for MDR could provide a revenue boost, the actual take rate—the portion of the transaction value the company keeps—will depend on how aggressively competitors price their services to win merchants. If competition remains fierce, Paytm may find it difficult to fully realize the margin gains suggested in the brokerage's projections.
Moving forward, the primary factor for investors to track will be official updates from the government and regulatory bodies regarding the structure and implementation of digital payment charges. Any changes to the timeline or the fee thresholds will directly influence how accurately the current earnings projections reflect the company's future financial performance.