UPI Adoption And Lending Expansion Will Support Long Term Upside Potential

Catalysts

About One MobiKwik Systems

One MobiKwik Systems operates a digital payments and consumer financial services platform focused on UPI, wallets and credit products in India.

What are the underlying business or industry changes driving this perspective?

• Rising adoption of UPI in India is feeding a growing funnel of transacting users on MobiKwik. Management links this directly to higher eligibility for loans, wallets and bill payments, creating scope for higher revenue per user over time.
• The shift from short tenure BNPL towards longer tenure, higher quality unsecured and secured loans, including loan against mutual funds and potential gold loans, is aligned with lender preferences and is positioned to support steadier lending revenue and more predictable earnings.
• Industry work on monetising wallet based UPI use via Pocket UPI, where an interchange or MDR framework has already been agreed at the industry level and awaits formal circulars, could convert part of currently zero revenue UPI GMV into a new fee stream, lifting payments revenue and possibly net margins.
• Improvement in lending unit economics, with lending related expense reported at 4.4% of disbursal and a consolidated take rate of about 7% to 8% that currently yields around 3% net margin, sets a base from which higher disbursal volumes can have a more direct effect on contribution and EBITDA.
• Cross sell from payments into credit and wealth products, supported by a growing base of UPI and wallet users and an expanding set of lending partners, can increase disbursals and fee pools, which management links to potential improvements in contribution margin and earnings.
• Newer business lines like Zaakpay, broking, FX retail and Quick Collect AI are being developed on top of existing payments and lending infrastructure. Management expects these to start contributing incrementally to revenue and operating leverage as they scale.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming One MobiKwik Systems's revenue will grow by 30.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -11.2% today to 6.5% in 3 years time.
• Analysts expect earnings to reach ₹1.6 billion (and earnings per share of ₹19.81) by about March 2029, up from ₹-1.2 billion today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 28.9x on those 2029 earnings, up from -12.6x today. This future PE is greater than the current PE for the IN Diversified Financial industry at 21.5x.
• Analysts expect the number of shares outstanding to grow by 0.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.37%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• UPI already represents about 40% of payments GMV and currently does not generate revenue. If wallet-based UPI monetisation through Pocket UPI takes longer than management expects, or the eventual MDR or interchange framework is less favourable than the industry hopes, the mix shift toward UPI could cap or dilute payments revenue growth and put pressure on net margins.
• The lending model relies heavily on unsecured loans and first loss default guarantee arrangements, with about 80% of disbursals under DLG and a reported net margin of roughly 3% on a 7.5% take rate. If credit quality weakens, recoveries disappoint or regulatory treatment of DLG tightens over time, lending-related expenses could move back up from the current 4.4% of disbursal and compress earnings.
• Management highlights that financial services revenue is about ₹60 crores this quarter, compared to prior periods closer to ₹100 crores to ₹150 crores when BNPL was included, and they do not expect to return to those higher levels in the current financial year. If the shift away from short-tenure BNPL to longer-tenure products fails to rebuild volumes as hoped, revenue and contribution from lending may remain below past levels, limiting improvement in EBITDA and earnings.
• The September fraud incident linked to a technical bug and exploited by roughly 2,400 merchants has already resulted in an exceptional item of about ₹11 crores after recoveries. Although controls and a new risk function are being introduced, any repeat issues in systems, onboarding or merchant risk could lead to further one-off losses, higher compliance and insurance costs and weaker net margins.
• Newer businesses such as Zaakpay, broking, FX retail and Quick Collect AI are currently small, with Zaakpay described as only slightly loss making and not yet meaningful for the consolidated numbers. If these lines take longer than expected to scale or fail to gain traction in a competitive market, they may not offset any slowdown in core payments or lending, limiting future revenue diversification and earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of ₹400.0 for One MobiKwik Systems based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be ₹24.2 billion, earnings will come to ₹1.6 billion, and it would be trading on a PE ratio of 28.9x, assuming you use a discount rate of 13.4%.
  
• Given the current share price of ₹196.46, the analyst price target of ₹400.0 is 50.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.