New Delhi [India], January 9 (ANI): India’s fintech ecosystem is witnessing rapid growth, with players like One97 Communications Ltd (Paytm) scaling operations while working toward achieving steady-state economics.
In a recent analysis, Bernstein has given a target of Rs 1100 for Paytm using a price-to-earnings (P/E) multiple-based approach.
This valuation is derived from a P/E multiple of 25x on FY30 earnings per share (EPS). The report notes that while fintech companies are expected to enjoy premium valuations during their growth phase, intensifying competition in the long term could result in a compression of these valuation multiples.
However, the report highlights potential downside risks to Paytm’s target price. These include a slowdown in loan disbursals due to operational or regulatory challenges, headwinds in the payments segment from regulatory changes, and a slowdown in consumer credit growth stemming from regulatory actions.
For SBI Cards, Bernstein notes the significant headwinds posed by the combination of Unified Payments Interface (UPI) growth and the widespread adoption of digital credit.
The report values SBI Cards at Rs620 using a P/E multiple of 21x on FY26 EPS. Despite these challenges, the report identifies upside risks, such as a revival in the revolver-to-spends ratio, stronger growth in RuPay cards, and regulatory actions that limit alternate consumption credit growth.
UPI’s dominance in India’s digital payment space accounts for nearly 70 per cent of cashless transactions. However, UPI’s zero Merchant Discount Rate (MDR) structure has curtailed direct revenue streams for payment platforms. Instead, a government subsidy of 6-7 basis points remains the primary revenue source.
Despite exponential growth in UPI transaction volumes, profitability in the payments ecosystem remains constrained due to high competition and limited revenue streams.
Bernstein outlines several trends that could enhance the profitability of core payments businesses. One significant driver is the increasing share of credit-based payments on UPI platforms.
Credit payments, which offer better margins than debit payments, are expected to grow substantially. Rupay credit card transactions via UPI, for instance, have risen to account for approximately 30 per cent of all credit card transactions since March 2024, compared to 10 per cent in FY24.
Another key factor is the sustained growth in payment volumes. UPI payments continue to grow at an annual rate of 40-50 per cent, with cashless transactions reaching nearly 50 per cent of private consumption expenditure.
Bernstein predicts that the value of cashless payments could grow to 2-3 times India’s consumption expenditure, similar to trends in markets like China. This scale advantage could drive better operating leverage and profitability.
The report highlights emerging revenue streams, such as device-based solutions like soundboxes, which contribute significantly to payment margins.
For Paytm, device-related revenues account for approximately 50 per cent of its payment margin. Additionally, platforms are introducing monetization strategies, including platform fees and rationalized pricing schemes for merchants, to enhance profitability. (ANI)
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