Paytm Target Cut to ₹1,450 by Jefferies, But 'Buy' Call Stays

Introduction

Brokerage firm Jefferies has revised its outlook on One97 Communications, Paytm's parent company, reducing the price target to ₹1,450 from ₹1,600. The adjustment comes in response to the non-renewal of the Reserve Bank of India's (RBI) Payments Infrastructure Development Fund (PIDF) scheme beyond its December 2025 deadline. Despite this revision, which led to a near-term impact on earnings estimates, Jefferies has maintained its 'Buy' recommendation on the stock. The brokerage firm asserts that the company's core business fundamentals remain robust and are not indicative of any operational weakness.

The Impact of the PIDF Scheme's Discontinuation

The PIDF scheme, initiated by the RBI in January 2021, was designed to accelerate the deployment of payment acceptance infrastructure, such as Point of Sale (PoS) terminals and QR codes, particularly in tier-3 to tier-6 towns. For Paytm, this scheme was a meaningful source of income. In the first half of the financial year 2026 alone, the company earned ₹128 crore in incentives, a figure that constituted 46% of its adjusted Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) for the period. With the scheme not being extended, Jefferies has removed this income stream from its future financial models. The brokerage had previously projected that Paytm would earn approximately ₹280 crore from this incentive in each of the financial years 2027 and 2028.

Revised Financial Projections

The removal of the PIDF incentive from forward estimates has a direct impact on Paytm's projected profitability. Jefferies has consequently lowered its adjusted EBITDA estimates for FY27 and FY28 by a range of 8% to 14%. This downward revision in earnings is the primary driver behind the cut in the price target to ₹1,450. However, the new target still implies a potential upside of 25% from the stock's price level following the news. The market reacted to the development with an 8% fall in Paytm's share price, which settled at ₹1,155.

Why Jefferies Maintains a 'Buy' Rating

Jefferies was explicit in its report that the earnings revision is purely incentive-driven and not a reflection of a deteriorating core business. The firm's decision to retain its 'Buy' rating is anchored in the continued strength and healthy traction observed in Paytm's core payments and financial services verticals. The underlying operational performance of the company is seen as strong, with a clear path to improving profitability that is independent of the discontinued government incentive.

Core Business Momentum Remains Strong

According to the Jefferies report, Paytm's fundamental growth story is intact. The brokerage projects a compound annual growth rate (CAGR) of approximately 23% in revenue over the financial years 2026 to 2028. This growth is expected to be led by strong performance in its primary business segments. Furthermore, contribution margins are anticipated to remain stable at a healthy level of around 58% during this period. Operating leverage is highlighted as a key factor that will drive profitability, with adjusted EBITDA margins forecast to improve steadily to nearly 17% by FY28. This combination of revenue growth and margin expansion is expected to allow net profits to scale significantly.

Paytm's Strategy to Mitigate the Impact

Paytm's management has communicated that it plans to mitigate the loss of incentive income through various operational adjustments. Jefferies acknowledges these strategies, which include increasing device subscription fees, improving take rates on non-UPI merchant payments, and implementing stricter cost controls. In its financial models, Jefferies has taken a conservative approach, factoring in only a partial offset from these measures rather than a full recovery of the lost income. For instance, the brokerage has adjusted its model to reflect a hike in device subscription fees to a 6-7% range, up from 3% previously.

Key Financial Data Summary

Analyst's Long-Term Outlook

Despite the short-term headwinds, Jefferies views Paytm as being at a critical inflection point. The brokerage believes the company is well-positioned to leverage its extensive distribution network and large customer base to scale up new, higher-margin business segments. Emerging revenue streams, investments in AI partnerships, and international expansion are seen as key drivers for future growth. The maintained 'Buy' rating underscores a conviction in Paytm's ability to navigate regulatory changes and capitalize on new opportunities within India's dynamic fintech landscape.

Conclusion

In summary, while the discontinuation of the RBI's PIDF scheme has prompted a cut in Paytm's price target and near-term earnings forecasts, Jefferies' analysis suggests the company's long-term growth trajectory remains positive. The core business continues to demonstrate strong momentum, and the company has clear strategies to offset the lost incentive income. The focus now shifts to execution, as Paytm works to leverage its market position and operational strengths to drive sustainable profitability and deliver value to its shareholders.