Paytm Surges 9% After Bernstein Raises Target Price Above IPO Level

Shares of One97 Communications, the parent company of Paytm, surged nearly 9% in intraday trade on Monday after global brokerage Bernstein raised its target price on the stock to ₹2,200, citing the potential introduction of merchant discount rates (MDR) on UPI transactions as a key long-term earnings driver.

The stock climbed as much as 9.7% to an intraday high of ₹1,580.60 on the NSE around 1 p.m., its highest level in nearly four years.

Bernstein maintained its 'Outperform' rating on the stock while increasing its target price to ₹2,200 from ₹1,500. The revised target implies an upside of more than 52% from Friday's closing price and marks the first time since Paytm's listing that the brokerage's target has moved above the company's IPO price of ₹2,150.

Bernstein builds UPI MDR into forecasts

The brokerage said it has incorporated the introduction of merchant discount rates on UPI transactions into its base-case estimates from FY28 onwards.

According to Bernstein, recent legislative changes removing the statutory prohibition on charging MDR suggest that the debate has shifted from whether MDR will return to when and how it will be implemented.

"As a result, we move UPI monetisation from the optionality bucket into our base-case forecasts and phase in its benefits from FY28E onwards," the brokerage said.

It expects MDR to improve Paytm's net payments margins by 3-4 basis points, leading to a 30% increase in its FY30 earnings per share estimates compared with its earlier projections.

Bernstein estimates MDR could apply to around 50% of UPI transaction value, generating nearly ₹2,200 crore of incremental EBITDA for Paytm by FY30.

Clarity on MDR

The rally also followed recent comments from the government clarifying that consumers will not be charged for UPI transactions.

Over the weekend, the government reiterated that customers would continue to enjoy free UPI payments. If MDR is introduced, it would apply only to select merchant transactions above a specified threshold.

Finance Minister Nirmala Sitharaman had earlier said MDR on digital transactions is borne by merchants and not customers, adding that such charges could help banks and fintech companies invest more in payment infrastructure and security.

Stock Recovers From Post-listing Lows

Paytm was listed on Indian stock exchanges in November 2021 after raising ₹18,300 crore through its IPO, priced between ₹2,080 and ₹2,150 per share. The stock subsequently witnessed a prolonged decline, falling below ₹300 in February 2024 before staging a strong recovery.

Apart from the brokerage upgrade, technical indicators also remained supportive. Axis Direct identified Paytm among its preferred technical picks, noting that the stock had broken out of a rounded-bottom pattern on the weekly chart while continuing to form a higher high-higher low structure, indicating sustained buying interest and the potential beginning of a medium-term uptrend.