Shares of One 97 Communications Ltd, parent of fintech firm Paytm, have been in focus amid news flow around the potential valuation of PhonePe’s upcoming public issue. The interest is understandable: Paytm is the closest listed comparable peer to PhonePe. Both fintech firms began by facilitating consumer and merchant payments through UPI before expanding into the distribution of financial products such as loans and insurance broking.
In a recent report, analysts at Macquarie Capital Securities said Paytm compares favourably with PhonePe as it is already profitable at the Ebitda level and could therefore see a re-rating.
Paytm’s market capitalization currently stands at about ₹77,000 crore, while PhonePe is reportedly considering a valuation of $15 billion, or around ₹1.35 trillion assuming a dollar-rupee exchange rate of 90. Since PhonePe remains loss-making at the Ebitda level, a market-cap-to-revenue comparison is more relevant. Annualizing H1FY26 net revenue (half-year ended September) implies an mcap-to-revenue multiple of about 10x for Paytm compared with 17x for PhonePe, a seemingly reasonable observation.
Still, investors should weigh two key risks before placing their bets on Paytm.
First, the valuation gap between the two companies may not necessarily narrow in Paytm’s favour. A comparable example is Billionbrains Garage Ventures Ltd (Groww) and Angel One Ltd. When Groww launched its public issue, Angel One was the only prominent listed discount brokerage. Yet, Groww continues to trade at a substantial premium to Angel One. Based on Bloomberg consensus estimates, Groww trades at 29x FY28 earnings per share compared with 16x for Angel One. Perhaps, the Street believes that Groww will continue to grow faster even beyond FY28.
Another reason for Groww’s continued premium over Angel One could be its much larger NSE active customer base of about 12 million, compared with the latter’s 7 million. Higher customer base allows for more cross-selling opportunities of financial products.
A similar argument could justify a premium valuation for PhonePe over Paytm. PhonePe has around 238 million monthly active customers and 46% market share by transaction volume in FY26 so far. These figures for Paytm stand at 76 million and 7%, respectively. So, just like Groww, PhonePe has a bigger opportunity than Paytm to cross sell. In fact, Macquarie notes that PhonePe has been gaining ground in the distribution business in recent years, narrowing the gap with Paytm.
Paytm’s H1FY26 distribution revenues were 2x of PhonePe compared with 10x in FY24. If PhonePe continues to be aggressive, competitive intensity could heighten for Paytm, hurting its profit margin. Paytm derives nearly 30% of its revenue from distribution.
The second risk factor is Paytm’s absolute valuation by itself is already rich. While a relative comparison has been made above on mcap-to-revenue, Paytm’s EV/Ebitda multiple is 32x, based on the FY28 Bloomberg consensus estimate.
Sure, there is a looming threat to PhonePe’s market share from the National Payments Corp. of India, which may cap the market share of a single UPI app to 30% of total transaction volume after 2026 to lower concentration risk. But if such a cap is implemented, Paytm won’t be the only one to grab the space vacated by PhonePe as there are several others including Jio Financial.
To be sure, Macquarie, too, is not bullish on Paytm’s absolute valuation as it has a ‘Neutral’ rating on the stock. It is only saying: Paytm’s current valuation appears lower than implied valuation for PhonePe.
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