Will PhonePe’s IPO trigger a rerating for Paytm shares?

PhonePe is India’s largest digital payments platform with over 45% market share in UPI as a third-party application provider (TPAP).

• PhonePe files for IPO, targets $15 billion valuation
• About 10% stake to be sold, aiming to raise $1.5 billion
• PhonePe leads UPI with 45% share, faces regulatory risks

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The proposed listing of PhonePe is shaping up to be one of the most significant events in India’s fintech sector this year. The Walmart-backed payments major has filed its draft red herring prospectus (DRHP) and, according to media reports cited by Macquarie, is targeting a valuation of around $15 billion. Roughly 10% of the company is expected to be sold by existing shareholders, potentially raising about $1.5 billion.

At that valuation, PhonePe would be worth 60-90% more than Paytm, despite being EBITDA negative, while Paytm is EBITDA positive. The comparison is likely to sharpen investor focus on relative business models, profitability and regulatory risks across India’s digital payments leaders.

PhonePe is India’s largest digital payments platform with over 45% market share in UPI as a third-party application provider (TPAP). As of FY25, it had a cumulative registered user base of about 618 million and around 45 million registered merchants, covering nearly 77-80% of India’s 56-58 million trade and services merchant base. Notably, about 65% of its users as of 1HFY26 came from Tier-2 and smaller cities, underlining its deep distribution reach.

The company is now aggressively leveraging this scale to expand its financial services distribution business, including loans, mutual funds and insurance. Revenue contribution from distribution has risen sharply from 4% in FY24 to 13% in 1HFY26. This has direct implications for Paytm, where nearly one-third of revenues come from distribution. While Paytm’s distribution revenues remain about twice that of PhonePe as of 1HFY26 (down from 10 times in FY24), rapid scaling by PhonePe could intensify competition and put pressure on margins.

However, the DRHP also highlights near-term challenges. Around 19% of PhonePe’s 1HFY26 revenues (24% in FY25) came from segments that have now been discontinued or restricted by regulators. These include real money gaming (RMG), rent payments via credit cards - curtailed by the RBI to prevent misuse - and incentives under the Payment Infrastructure Development Fund (PIDF), which have ended. Additionally, UPI incentives from the government account for about 6% of revenues, compared to roughly 2% for Paytm.

PhonePe also faces risks from potential NPCI-imposed UPI market share caps of 30% by December 2026, which could affect onboarding of new users. High share-based compensation remains another drag, keeping EBITDA negative.

On valuation metrics, assuming a $13-15 billion valuation and adjusting for discontinued revenue streams, PhonePe would trade at 37-43 times 1HFY26 adjusted revenues, versus about 19 times for Paytm. For investors, the listing could act as a near-term re-rating trigger for Paytm, depending on final pricing.