Can Pine Labs shares tank over 10%? Emkay sets target below IPO price, gives 'reduce' tag

Pine Labs share price: Shares of newly-listed Pine Labs fell in trade on Thursday, November 20, after domestic brokerage Emkay Global initiated coverage with a ‘reduce’ rating and a target price of ₹210, below the company’s issue price of ₹221.

Pine Labs share price fell as much as 2.8% to a day’s low of ₹235.30 today, while Emkay Global’s target implies a 13% decline from the stock’s last close of ₹242.10.

The stock is also trading 17% below its listing-day high of ₹283.70, which remains its peak level to date.

Why is Emkay bearish on Pine Labs?

There are three main triggers behind Emkay's bearish outlook on Pine Labs shares:

1. Increased competition

Pine Labs has a strong position in the enterprise point-of-sale (POS) segment, with loyal customers due to its deep software integration, and is a leader in EMI aggregation thanks to its early-mover advantage. However, competition is expected to increase as more players enter these markets, said Emkay.

Similarly, in merchant acquisition, industry growth is being led by digitisation of small merchants. While Pine Labs is ramping up shipments of low-end Mosambee devices, Emkay finds its distribution still weaker than its peers’, limiting its right to win in this segment.

"We estimate a modest 18.8% revenue CAGR for the Digital Infrastructure and Transaction Processing (DITP) business over FY25–28E, on increasing competition in the enterprise POS segment and India’s payment acceptance landscape migrating toward QR-based solutions.

2. Gift-card business growth restricted

Pine Labs' India gift-card business is profitable albeit growth-constrained, said the brokerage. "Growth in the gift card business is fueled by the international business (192% CAGR over FY22-9MFY25, annualised) with volatile margins (ranging from 0.5-56.3% during FY22–9MFY25) while India growth is muted (13.4% CAGR)," said the brokerage.

3. Valuations at a premium

At current valuations, Pine Labs trades at 28.1x FY28E EV/EBITDA and 56.4x P/E. Given its weaker competitive position vs peers, the maturing nature of its core enterprise POS business and ongoing market-share losses across both POS and affordability, we view risk-reward as unfavourable, said Emkay.

As a result, it initiated coverage on Pine Labs stock with a 'reduce' tag and a target price of ₹21, implying a FY28E EV/EBITDA multiple of 24.2x.

Pine Labs IPO Details

Shares of fintech Pine Labs had made a firm market debut last Friday, closing with a premium of over 14% against the issue price of ₹221. During the day, it had risen almost 29% at one point.

The strong listing followed a muted response of just 2.46 times from investors, with QIBs leading.

The IPO comprised a fresh issue of shares worth ₹2,080 crore and an offer for sale (OFS) of over 8.23 crore equity shares. The company will use proceeds from the fresh issue to repay debt, invest in IT assets, fund cloud infrastructure, support technology development initiatives, and procure digital checkout points.

Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.