Will PhonePe’s $15 Billion IPO Re-Rate Paytm Shares?

PhonePe appears to be moving closer to its long-awaited initial public offering (IPO). Recent media reports, along with commentary from overseas brokerage Macquarie Group, suggest the company may be targeting a valuation of around $15 billion.

That number stands out when compared with its listed peer, One97 Communications (Paytm). PhonePe is still earnings before interest, taxes, depreciation, and amortisation (EBITDA) negative, while Paytm has already turned EBITDA positive. Even so, the expected IPO valuation is estimated to be roughly 60–90% higher than Paytm’s current market capitalisation, which highlights how strongly the market may be pricing growth and future potential in the fintech space.

Currently, Paytm is trading at a revenue multiple of 19x. But PhonePe’s proposed IPO pricing suggests a much steeper multiple of 37x to 43x based on its adjusted half-yearly revenues for FY 2026.

Paytm recently turned profitable, posting a net profit of ₹225 Cr. for the December 2025 quarter. Meanwhile, PhonePe holds a dominant market share of >45% as a third party application provider (TPAP). But the company is currently facing a significant regulatory cloud. Its current revenue is potentially at risk due to changing rent payments and real money gaming regulations.

So, PhonePe IPO is eyeing a valuation nearly double that of its profitable peer. Now, an important question for the investors is: what is re-rating, and why does it matter for Paytm?

What Is "Re-Rating" & Why It Matters For Paytm?

In the world of the stock market, you can think of "re-rating" like a home valuation appraisal in a booming neighbourhood. Imagine a new, shiny house on your street getting sold for a record-breaking price. As a result, the value of your own home might go up just by being in the same locality.

Similarly, for companies, a re-rating can occur when investors decide that a particular stock or sector deserves a higher valuation multiple (for example, price-to-earnings or price-to-sales) than it previously held.

This change in sentiment can usually occur due to:

• An extraordinary growth milestone

• A peer’s high-priced IPO

• A considerable improvement in the company’s business model

Now, here is why this re-rating matters for Paytm.

Relative valuation - For Paytm, the PhonePe IPO can be the perfect market moment for re-rating. So, if the market is willing to pay a premium multiple for PhonePe, even while it’s still burning cash to grow, then Paytm’s current valuation (that is much lower) might start to look like a bargain. Markets often price companies relative to peers, not in isolation.

Internal Transformation - Paytm’s own internal transformation has also led to the potential for re-rating. Paytm is focusing on high-margin financial services rather than just low-margin payments. Thus, the company has improved its contribution margins and reached a milestone of being EBITDA positive.

Can PhonePe’s Dominance Survive the Regulatory Tightrope?

The headline valuation of the PhonePe IPO is enough for any investor to notice. A deeper look at their filing shows a few "watch out" signs. Here are a few of them:

• Regulatory Hurdles - Every high-growth story comes with its own set of challenges. For PhonePe, the key challenges right now are regulatory. A large share of its revenue has come from segments that the Reserve Bank of India has recently tightened rules around or placed under closer scrutiny. This includes areas like rent payments through credit cards and incentives linked to the Payments Infrastructure Development Fund.

• Market Share Limits - The National Payments Corporation of India (NPCI) has proposed a cap on market share for third-party unified payments interface (UPI) apps. Currently, PhonePe commands nearly half of all UPI transactions in the country. So, if the regulator enforces a limit on how much of the market a single player can own, PhonePe’s ability to add new customers could hit a ceiling.

• Intense Competition - PhonePe is trying to diversify into the same financial distribution territory that Paytm is currently dominating. These distributions include lending, mutual funds, etc. So, the battle for the consumer’s wallet can become much more expensive and potentially squeeze margins for everyone involved.

Also Read - IPO Allotment Status: Here’s How to Check Allotment Online

Investor Takeaway

The buzz around the PhonePe IPO is a signal that the fintech sector is maturing. It may or may not trigger a direct surge in Paytm’s stock price. However, it can certainly provide a "price discovery" mechanism for the entire payments industry.

PhonePe’s aggressive valuation target suggests a high level of confidence in the future of Indian digital payments. It could be interesting to witness the market’s appetite for a loss-making entity at such a premium.

Source:

Business Today

Business Standard