Global brokerage JPMorgan has upgraded Paytm shares to 'Overweight' and raised its price target to ₹2,100, citing the potential impact of UPI merchant discount rate (MDR) revenues on fintech companies. According to CNBC TV18, JPMorgan has also increased its target price-to-earnings (P/E) multiple for Paytm to 46 times from 44 times. For Pine Labs, JPMorgan has retained its 'Neutral' recommendation while raising its price target to ₹190. The brokerage estimates that MDR-related benefits could drive a 9-28% upgrade to Pine Labs' EBITDA and EPS estimates for FY27-29E. JPMorgan has also increased its target P/E multiple for Pine Labs to 42 times from 40 times.
Fintech stocks experienced significant gains on Wednesday as the 0.4% merchant discount rate (MDR) on UPI merchant payments above ₹2,000 took effect from October 15. According to ET Now, Paytm shares hit a 52-week high of ₹1,856.50, gaining as much as 7.24% during intraday trading before closing at ₹1,791.70, up 3.50%. Network People Services Technologies (NPST) surged 12.27% during the session, while MobiKwik and Pine Labs also posted gains of 5.96% and 2.68% respectively. However, both Pine Labs and MobiKwik gave up their early gains by the close, with Pine Labs ending 4.28% lower and MobiKwik declining 1.61%. The Government of India has notified this 40 basis points (bps) MDR on person-to-merchant (P2M) payments above ₹2,000, which is higher than market expectations of 25 bps and has significantly boosted earnings estimates for fintech companies.
JPMorgan estimates that the UPI MDR could create an industry revenue pool of around ₹17,000 crore on a run-rate basis for FY27. Of this, the brokerage expects 20-30% each to accrue to acquiring banks and their payment aggregators (PAs), as well as third-party application providers (TPAPs). According to JPMorgan, Paytm operates as both a TPAP and an acquiring PA, giving it exposure across both transaction legs. The brokerage estimates that factoring in MDR revenues across both legs could result in a 35-54% upgrade to Paytm's EBITDA and earnings per share (EPS) estimates for FY27-29E. JPMorgan noted that the MDR on UPI comes ahead of estimates and is "higher than expectations" of 25bps, with the industry revenue opportunity estimated at ₹150-180 billion.
According to SBI Securities, the 0.4% MDR creates a potential annual revenue pool of ₹20,000-22,000 crore, with merchant acquirers accounting for around 30% and UPI applications getting about 20%. Sunny Agrawal from SBI Securities estimates that merchant acquirers like Pine Labs could access a larger revenue pool compared to UPI applications such as Paytm. However, the entire 0.4% MDR will not become revenue for either company - Agrawal expects around 20-30% of annual gross merchandise value (GMV) for both players to be eligible for MDR, assuming a take-rate of around 2-3 basis points from the overall 40 basis points. He estimates an incremental earnings contribution of ₹50-100 crore for Pine Labs against its fiscal 2026 reported profit after tax of ₹113 crore, and ₹100-200 crore for Paytm against FY26 PAT of ₹552 crore. Mirae Asset Sharekhan's Sameer Sawant sees Paytm as the preferred play due to its presence on both sides of UPI transactions, noting that only payments above ₹2,000 qualify which is around 4% by count but two-thirds by value.
According to a regulatory filing reported by ET Now, Paytm confirmed that the new framework will provide an additional source of revenue from its merchant business. The company stated that "This will generate additional revenue from the merchant business for many of the payment transactions that were free earlier." The ₹300 cap on MDR applies to transactions of ₹75,000 and above, ensuring that consumers will not be charged for UPI payments. As per Emkay Global, the distribution of the 40bps MDR includes issuing bank (16bps), acquiring bank (12bps), Payer TPAP (8bps), and Payer PSP bank (consumer handle, 4bps). While the issuing bank keeps the major part of the MDR, acquirers like Paytm and Pine Labs would keep the share of 12bps of the acquiring bank. The GoI recommends that players create a pool equivalent to 5 per cent of MDR collections to support infrastructure for smaller merchants, which can help deepen the network for UPI platforms.
According to ET Now reports, the introduction of MDR for eligible high-value merchant transactions has brought payment and fintech companies into sharp focus in the stock market. The present value of the UPI MDR stream adds ₹434 billion to Paytm's valuation, prompting Emkay to increase its target price to ₹2,400. Jefferies has retained a 'Buy' rating on Paytm and raised the target price to ₹2,150 from ₹2,100, reflecting the rise in earnings. The optimism follows NPCI's introduction of the 0.4% MDR on eligible UPI person-to-merchant transactions above ₹2,000 from October 15, with several exemptions and lower rates applying to determine the eventual earnings benefit for each company. The framework makes UPI self-sustaining and truly transformative for fintechs by giving it a commercial revenue model that scales with value instead of relying on government subsidies. For Pine Labs, Emkay estimates the new MDR revenue stream could add ₹5,120 crore to Pine Labs' valuation, with the company's target price set at ₹230.
