Motilal Oswal Financial Services has issued a Neutral call on One 97 Communications (Paytm), with a revised target price of Rs 1,000, reflecting an 8% upside from current levels. The research highlights Paytm’s steady recovery in business metrics, robust merchant expansion, and the company’s progress toward profitability, while also flagging regulatory headwinds and UPI market share volatility as key risks. Investors are advised to monitor Paytm’s transition from a payments-centric platform to a more diversified fintech player, as the company aims for EBITDA breakeven by FY26 and a sharp rise in profitability by FY28.

Summary of Motilal Oswal’s Investment Thesis

Motilal Oswal maintains a Neutral stance on Paytm, setting a target price of Rs 1,000, as the company navigates a challenging regulatory landscape but demonstrates improving operational metrics and a clear glide path to profitability.

Paytm’s merchant business is gaining momentum, with resumed customer onboarding and stabilization in monthly transacting users (MTUs). The company’s focus on deeper financial integration and robust device deployment is expected to drive a 23% CAGR in gross merchandise value (GMV) and a 35% CAGR in loan disbursements over FY25–28. Despite a sharp drop in payment revenues in FY25 due to regulatory actions, a 17% rebound is forecast for FY26, with contribution margins projected to rise to 58% by FY28. However, persistent regulatory risks, declining UPI market share, and the government’s refusal to allow MDR on UPI transactions temper the near-term outlook. The report underscores Paytm’s transition toward sustainable profitability, but cautions that consistent execution remains critical for shareholder returns.

Key Investment Highlights

1. Business Metrics Show Gradual Recovery

Paytm’s core business metrics are rebounding, with merchant business leading the charge. Disbursement volumes and GMV are both growing at a steady pace, while the resumption of customer onboarding and stabilization in MTUs underpin a healthier revenue outlook.

2. Merchant Market Share Expansion

The company’s merchant base grew 8% year-on-year to 44 million as of Q4 FY25, while device deployments surged 16% to 12.4 million. Paytm’s ecosystem integration, particularly with high-GMV merchants and FLDG-backed monetization, is expected to strengthen its market position in offline and online segments.

3. Payment Revenues Set for Recovery

After a regulatory-induced slump in FY25, Paytm’s payment business revenue is projected to grow 17% in FY26, driven by merchant business expansion and a recovery in consumer services. A 22% CAGR in overall revenues is forecast for FY25–28.

4. Lending Momentum Accelerates via FLDG Model

The First Loss Default Guarantee (FLDG) model is supporting robust growth in loan disbursements, with merchant loans expected to grow 30–50% annually. Financial services revenue is estimated to rise at a 26% CAGR, with the segment’s share of total revenue reaching 27% by FY28.

5. Contribution Margin and Profitability Outlook

Contribution margins are forecast to reach 58% by FY28, aided by diversified revenue streams and disciplined cost control. The company’s multi-channel approach and rationalized marketing spends are expected to support margin expansion and EBITDA breakeven by FY26.

Regulatory and Industry Risks

1. UPI Market Share and MDR Policy Uncertainty

Paytm’s UPI volume market share has stabilized at 6.9%, and value market share at 5.5%, after a period of decline. The Finance Ministry’s stance against introducing MDR on UPI transactions limits revenue upside from payments, compelling Paytm to focus on alternative monetization strategies.

2. Reduced Government Incentives

UPI incentives received from the government have sharply decreased from Rs 2.9 billion in FY24 to Rs 700 million in FY25, impacting near-term revenue but not derailing Paytm’s dual-core strategy of scaling payments and financial services.

3. Execution and Regulatory Overhangs

The fast-evolving digital payments landscape, coupled with regulatory risks and UPI market share volatility, introduces uncertainty to Paytm’s growth trajectory. Sustained execution and adaptability will be crucial for long-term value creation.

Financial Projections and Valuation

1. Revenue and Profitability Estimates

Motilal Oswal projects a 22% CAGR in revenue from operations over FY25–28, reaching Rs 126 billion by FY28. Adjusted EBITDA is expected to turn positive in FY26, with PAT rising sharply to Rs 16.2 billion by FY28, marking a significant turnaround from losses in prior years.

2. Segmental Revenue Mix

The share of financial services in total revenue is forecast to increase from 25% in FY24 to 27% in FY28, enhancing the company’s margin profile.

3. Valuation Multiples and Target Price

The revised target price of Rs 1,000 is based on 20x FY27E EBITDA. At current levels, Paytm trades at a P/E of 67.7x FY27E and 38.7x FY28E, reflecting a balance between growth potential and execution risks.

Stock Levels and Investor Targets

Current Market Price (CMP): Rs 924
Target Price (TP): Rs 1,000 (8% upside)
Investment Rating: Neutral
Key Levels for Investors:

Support: Rs 900

Resistance: Rs 1,000 (Target)

Long-term Profitability Target: PAT of Rs 16.2 billion by FY28

Peer Comparison Table

Conclusion: Strategic Patience Required

Motilal Oswal’s Neutral rating reflects Paytm’s improving fundamentals and path to profitability, but also acknowledges persistent regulatory risks and execution challenges. Investors should closely track Paytm’s progress on merchant expansion, lending growth, and cost discipline, while remaining vigilant to policy shifts in the digital payments sector. The Rs 1,000 target price offers moderate upside, best suited for investors with a balanced risk appetite seeking exposure to India’s evolving fintech landscape.