Shares of Pine Labs experienced a dip in trading on Thursday, November 20, following the initiation of coverage by Emkay Global Financial Services with a "reduce" rating. The brokerage firm set a target price of ₹210, which is below the company's issue price of ₹221 and signals a potential downside of approximately 13% from the stock's previous close of ₹242.10.
The stock price fell as much as 2.8% to a day's low of ₹235.30. The current target price also places the stock 17% below its listing-day high of ₹283.70.
Emkay's cautious stance is rooted in several factors. Increased competition within the enterprise Point of Sale (PoS) segment, where Pine Labs has historically held a strong position, is a primary concern. While Pine Labs has benefited from deep software integration and an early-mover advantage in EMI aggregation, the entry of new players is expected to intensify competition. Emkay also points out that the digitization of small merchants is driving industry growth in merchant acquisition. Despite Pine Labs' efforts to increase shipments of low-end Mosambee devices, Emkay believes its distribution network remains weaker than its competitors, potentially limiting its ability to gain market share in this segment.
Emkay anticipates a modest 18.8% revenue CAGR for the Digital Infrastructure and Transaction Processing (DITP) business between fiscal years 2025 and 2028. This projection reflects increasing competition in the enterprise POS segment and a broader shift in India's payment acceptance landscape towards QR-based solutions.
Another factor contributing to Emkay's "reduce" rating is the perceived limitations on the growth of Pine Labs' gift card business in India. While the business is currently profitable, Emkay suggests its growth is constrained. The brokerage firm notes that a significant portion of the segment's revenue is derived from interest income earned on consumer funds, rather than solely from transaction fees. This reliance makes Pine Labs susceptible to interest rate cycles and regulatory changes.
Finally, Emkay considers Pine Labs' current valuations to be at a premium. The brokerage states that Pine Labs is trading at 28.1x FY28E EV/EBITDA and 56.4x P/E. Considering its competitive positioning, the maturing nature of its core enterprise POS business, and ongoing market share losses, Emkay views the risk-reward as unfavorable. As a result, Emkay initiated coverage on Pine Labs stock with a 'reduce' tag and a target price of ₹210, implying a FY28E EV/EBITDA multiple of 24.2x.
Pine Labs, backed by investors such as Peak XV and Mastercard, raised ₹3,900 crore through its IPO. The company intends to use the net proceeds to repay or prepay certain borrowings, invest in overseas subsidiaries, and develop its IT infrastructure.
