Shares of One 97 Communications, the parent company of fintech major Paytm, rallied as much as 4% to Rs 1,804 after international brokerage Bernstein named the stock its top pick, citing robust merchant lending growth, operating leverage and the potential introduction of MDR on UPI as key drivers of earnings growth.

With a target price of Rs 2,200, the brokerage forecasts an upside potential of up to 26% from current market levels. Bernstein expects Paytm’s EPS to reach Rs 78 by FY29. Even after excluding any potential impact from MDR on UPI, its FY29E EPS estimate stands at Rs 54, still above the Rs 46 consensus estimate.

Why are Bernstein analysts bullish on Paytm shares?

1.) Merchant loans are a key driver: Bernstein expects Paytm’s financial services revenue to grow at around 27% CAGR between FY26E and FY30E, driven primarily by its merchant loan distribution business. The brokerage expects merchant loans to remain the key contributor, accounting for around 75% of financial services revenue.

Bernstein sees Paytm having a clear competitive advantage and a long runway for growth, even if the company only achieves modest increases in loan penetration among its merchant base.

2.) Strong operating leverage: Analysts expect meaningful operating leverage from Paytm’s existing businesses, with indirect expenses projected to grow only around 8% as key cost drivers peak. Technology costs are expected to remain stable, while slower device additions should keep sales and merchant acquisition costs under control.

Any incremental spending is likely to be directed towards new initiatives that can generate additional revenue.

3.) MDR to boost profitability – Bernstein expects MDR on UPI to provide a meaningful boost to Paytm’s profitability. The brokerage points out that payment activity is highly concentrated, with around 4% of transactions accounting for 70% of transaction value, while the top 5% of merchants contribute the bulk of payment value.Given this concentration, Bernstein remains positive on the potential earnings upside for Paytm, regardless of how the eventual MDR framework is structured.

Bernstein lists downside risks for Paytm stock

MDR on UPI is not introduced: The estimates assume the introduction of MDR on UPI transactions, which accounts for 30% of our EBITDA forecasts. Consequently, any decision by the government or regulator to retain the zero-MDR framework, whether due to merchant resistance, policy considerations, or concerns around digital payment adoption, would represent a material downside risk to earnings estimates.

While Paytm’s core payments, merchant subscriptions and lending businesses would remain intact, the absence of MDR would eliminate a significant earnings driver that’s baked into the base case, it said.

Slowdown in device additions: The forecasts assume device additions will gradually moderate from the current >20% growth rate. A sharper-than-expected slowdown in merchant acquisition could weigh on subscription revenue, merchant loans and payment monetisation, given the central role of Paytm’s device network in driving growth across its ecosystem.

Paytm shares have had a stellar 2026 despite overall weakness, as the stock has rallied over 70% in the last six months.

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