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In-line revenue; adj. EBITDA margin improves to 19% GTV grows 5% QoQ

* Pine Labs reported strong revenue growth of 24% YoY/9% QoQ to INR8.1b (inline), EBITDA of INR1.3b (inline) of and PAT of INR386m (est. INR514m) in 2QFY27 as platform GTV growth picked up at 5% QoQ.

* The DITP segment grew 21% YoY/7% QoQ, aided by strong traction in the number of transactions (22% YoY) and a steady pick-up in DCPs (17% YoY). Subscription revenue now contributes 27% of overall revenue.

* IAP revenue grew 31% YoY/15% QoQ led by strong growth in prepaid cards of 40% QoQ. The take rate of IAP rose to 1.53% (vs 1.32% in 1QFY27).

* Contribution profit rose 18% YoY to INR5.9b, with contribution margin improving to 72.8% from 72.3% in 1QFY27. Adj EBITDA grew 27% YoY and the Adj. EBITDA margin was 19%. EBITDA grew 41% YoY/31% QoQ (in line).

* On MDR, management indicated that more than 65% of the UPI GTV is driven by transactions above 2,000.

* We tweak our FY27E/28E earnings and estimate a PAT of INR2.3b/INR5.6b in FY27/FY28. We value Pine Labs at INR235, based on 24x FY28E EV/EBITDA. Reiterate BUY.

Highlights from the management commentary

* Business cyclicality and differences in monetization across use cases can lead to a divergence between GTV growth and associated revenue growth

* Pine Labs’ 2H EBITDA is expected to be materially higher than 1H as recent sales-team additions become productive, typically over nine months.

* EBITDA margin guidance remains at 21% for FY27, with a contribution margin of 52-56% and a DITP margin of 81–82%.

* Pine Labs plans to deploy 1m additional soundboxes, primarily across its existing merchant base, to capture transactions currently processed through competing devices

Valuation and view: Reiterate Buy with TP of INR235

Pine Labs reported a strong quarter, driven by robust revenue growth and continued market share gains across segments. Management expects FY27 revenue growth to exceed its guidance 23%, with H2 expected to be better than 1H. The company remains on track toward sustainable profitability, supported by operating leverage and improving productivity of the sales team hired recently. Management continues to guide for an FY27 EBITDA margin at 21%, with contribution margin ranging between 52% and 56% and DITP margin at 81-82%. We tweak our FY27E/28E earnings and now estimate a PAT of INR2.3b/INR5.6b in FY27/28, valuing Pine Labs at INR235, based on 24x FY28E EV/EBITDA. Reiterate BUY.

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