Paytm Stock, once seen as a promising digital payments giant with a potential turnaround story, is witnessing renewed pressure on its stock. After a sharp post-earnings rally, where the stock surged nearly 17%, all those gains have now been wiped out. On the latest trading day, the stock dropped sharply by around 8%, triggering concern among investors and traders alike.
The core reason behind this steep fall is the government's recent clarification on MDR — Merchant Discount Rate. There had been strong market speculation that the government was planning to reintroduce MDR on UPI transactions, a move that could have significantly benefited companies like Paytm by generating revenue on every transaction. However, that hope has now been dashed. The government has officially stated that it will not restore MDR on UPI payments anytime soon.
To recall, MDR on UPI transactions was removed back in January 2020 to promote digital transactions and reduce the burden on consumers and merchants. This zero-MDR policy was aimed at driving the digital payment revolution across India. However, from the business perspective of service providers like Paytm, it cut off a key revenue stream. The possibility of MDR's reintroduction had revived hopes for better revenue visibility and improved profitability.
In the absence of this development, those hopes have now faded. Analysts are suggesting that the absence of MDR could lead to over a 10% decline in Paytm’s EBITDA. Profit margins, which were expected to improve substantially, may remain under pressure. Management commentary from Paytm in recent quarters had emphasized that the restoration of MDR would be a game-changer for them, boosting profitability and topline growth. Now, that narrative seems to be backfiring.
Moreover, Paytm faces several existing challenges. The company is already struggling in the merchant acquiring space due to rising competition, especially from PhonePe, which is not only expanding rapidly but also reportedly managing employee acquisition more efficiently. Paytm, on the other hand, is incurring higher employee costs compared to PhonePe.
Additionally, apart from merchant loans, other segments of the business are also showing signs of weakness. This makes the path to profitability even more uncertain. The only bright spot — the potential return of MDR — now seems indefinitely postponed, leaving little immediate upside for investors.
Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Always consult with a financial advisor before making any investment decisions.
