Pine Labs share price upside capped on full valuation, Morgan Stanley says

Shares of recently listed Pine Labs will be in focus on Tuesday, December 23, after brokerage firm Morgan Stanley initiated coverage on the stock.

The brokerage has begun coverage with an 'Equalweight' rating and a price target of ₹260 per share, implying an upside potential of 12% from the previous closing price.

Morgan Stanley said Pine Labs is a leader in its key segments, benefiting from a first-mover advantage and a strong partner ecosystem.

The brokerage expects the company to deliver a revenue CAGR of 19% over FY25-FY28E and believes its transition towards an asset-light business model will help drive EBIT margins to 20% by FY28E, compared with 3% in FY25.

The brokerage maintains an 'Equalweight' stance, citing full valuation at 28 times its FY28 EV/EBITDA estimates.

Pine Labs saw two shareholder lock-ins expire this month. The first was on December 8, when 19.8 million shares, or 2% of the outstanding equity, became eligible for trading. The second occurred on December 12, when 39.7 million shares, or 3% of the total outstanding equity, were freed up for trade.

In its first quarterly result after listing, Pine Labs' GTV grew by 92% from last year to $48.2 billion, while the number of transactions grew by 44% from last year to 1.9 billion.

Its net profit stood at ₹6 crore from ₹5 crore in the previous quarter, while its Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) on an adjusted basis also remained flat at ₹122 crore from ₹121 crore last year.

There was also a sharp drop in ESOP expenses that contributed to the profitability of the company this quarter. ESOP expenses fell 28% from last year and stood at 4% of revenue, compared to 7% last year.

The stock of Pine Labs made a decent market debut on November 14, listing at ₹242 apiece on the bourses. This marked a premium of 9.5% over the IPO price.

Shares of Pine Labs settled 4.16% lower on Monday at ₹232.84. The stock trades just 5% above its IPO price of ₹221.