Digital Payment Advances Will Drive Long-Term Trends in Financial Markets

Key Takeaways

• Strong digital adoption, government support, and product differentiation are driving user growth, higher margins, and increased revenues across Paytm's expanding ecosystem.
  
• Strategic moves into adjacent financial services and operating leverage are boosting cross-selling, business diversification, and margin expansion prospects.
  
• Regulatory headwinds, margin pressure, concentration risk, lack of revenue diversification, and intensifying competition threaten sustained revenue growth and profitability for One97 Communications.

Catalysts

Provides payment, commerce and cloud, and financial services to consumers and merchants in India, the United Arab Emirates, Saudi Arabia, and Singapore.

• Continued rapid digitization of financial services in India and rising smartphone/data penetration are expanding Paytm's user base, especially in underserved Tier II/III and rural markets, supporting robust transaction volume growth and an enlarged addressable market
• likely to drive sustained revenue growth.
  
• Increasing government support for digital payments, including incentives for UPI and financial inclusion initiatives, offers tailwinds that can accelerate both customer onboarding and transaction value, providing structural growth drivers for GMV and top-line expansion.
  
• Strategic product differentiation through full-stack ownership of hardware/software (e.g., proprietary POS devices, card-enabled soundboxes, and next-generation merchant solutions) supports price premiums, sticky merchant relationships, and higher subscription revenue per device, which can improve net margins and profit growth.
  
• Expansion into adjacent financial services (e.g., merchant lending, insurance distribution, EMI financing) and a growing ability to cross-sell within the Paytm ecosystem are driving up revenue per user and facilitating business model diversification, supporting earnings stability and longer-term margin accretion.
  
• Enhanced operating leverage from scaling up payment and device deployments, increased capital efficiency in device refurbishment, and tight control of indirect expenses are combining with high contribution margins (+60%) to create significant near-term and long-term EBITDA margin expansion potential, supporting improved earnings.

One97 Communications Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming One97 Communications's revenue will grow by 23.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.1% today to 18.3% in 3 years time.
• Analysts expect earnings to reach ₹25.1 billion (and earnings per share of ₹29.31) by about August 2028, up from ₹3.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹31.3 billion in earnings, and the most bearish expecting ₹15.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 39.7x on those 2028 earnings, down from 243.6x today. This future PE is greater than the current PE for the IN Diversified Financial industry at 27.7x.
• Analysts expect the number of shares outstanding to decline by 1.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.83%, as per the Simply Wall St company report.

One97 Communications Future Earnings Per Share Growth

Risks

• Ongoing regulatory scrutiny and evolving RBI guidelines-especially around DLG (default loss guarantee) structures and partner banks-create uncertain headwinds for One97's core lending and payments businesses, risking future revenue growth and increasing compliance costs, which may impact net margins and overall earnings.
  
• Margin compression in payment services is likely to persist due to continued growth in UPI transactions (which have negligible or zero MDR) and limited visibility on MDR introduction for large merchants, directly constraining transactional revenues and pressuring profitability within the payments segment.
  
• High concentration risk in the lending business, with 30-40% of disbursals attributable to a single partner bank, exposes One97 to potential revenue volatility and platform risk if the partner's risk appetite or relationship changes, which could disrupt top-line growth and net income.
  
• Limited visibility and cyclicality in non-payments verticals (personal lending, BNPL, and wallet), combined with execution risk and dependence on macro cycles, threaten the company's ability to diversify revenues, potentially stagnating growth and inhibiting margin expansion if these verticals fail to recover or scale as expected.
  
• Intensifying competition driven by increased digital infrastructure penetration and commoditization of hardware (entry of seven more POS players, rising smartphone-based payment solutions) erodes pricing power, requiring higher investments and potentially compressing net margins, particularly if customer retention and device subscription rates weaken over time.

Valuation

• The analysts have a consensus price target of ₹1095.529 for One97 Communications based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1400.0, and the most bearish reporting a price target of just ₹705.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹136.9 billion, earnings will come to ₹25.1 billion, and it would be trading on a PE ratio of 39.7x, assuming you use a discount rate of 13.8%.
• Given the current share price of ₹1155.0, the analyst price target of ₹1095.53 is 5.4% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.