PhonePe DRHP Explained: UPI Volume Cap, Revenue Risks, Founder Share Sale

PhonePe, a leading digital payments company, has filed its UDRHP (Updated Draft Red Herring Prospectus) for an IPO that is fully Offer for Sale. This means existing shareholders will sell shares, and the company will not get fresh money from the issue. The company is a clear UPI leader, staying number one in UPI transactions for 58 straight months as of September 2025, and holding UPI volume market share of 46.85%.

It operates at a massive scale with strong user stickiness: 65.76 crore registered users and 4.72 crore merchants as of September 2025, 98.61% pin-code coverage, 99.23% 30-day retention, and rising “habitual users” (41.43% in March 2025 vs 28.41% in March 2023).

Financially, revenue from operations grew to ₹7,114.86 crore in FY25 (up 40.50% YoY; 56.25% CAGR from FY23 to FY25). Losses have reduced over time, and FY25 saw positive Adjusted EBITDA of ₹1,477.19 crore, but the company is not consistently profitable yet, with a ₹1,444.42 crore loss in the six months ended September 30, 2025.

With that context in mind, it’s equally important to look at a few key issues investors should keep on their radar. The reason is simple: PhonePe’s biggest strength, its dominance in UPI, is also the part of the business that faces the most regulatory scrutiny.

UPI Volume Cap Risk: Growth Could Be Restricted

A major overhang is the NPCI “volume cap” framework for UPI. It proposes that no single Third-Party App Provider (TPAP) should process more than 30% of total UPI volume, calculated on a rolling basis using the prior three months.

As of September 30, 2025, PhonePe’s UPI volume market share was 46.85%, which is far above the proposed 30% cap. The compliance deadline has been deferred multiple times and is currently extended until December 31, 2026, but there is no assurance of further extensions.

The practical impact can be meaningful. The SOP around enforcement indicates that measures could restrict a TPAP from onboarding new UPI users if it breaches the cap, while existing users may continue. In simple words, growth can get artificially limited even if the product stays strong, which can affect long-term expansion and leadership.

Policy Shocks: Revenue Streams Can Switch Off Quickly

PhonePe’s revenue lines can also change quickly because of policy decisions. A recent example is the discontinuation of rent and related payment services in September 2025 after RBI guidelines related to credit card rent payments to non-merchants. This segment generated ₹518.52 crore in the six months ended September 2025, which was around 13% of platform revenue, and ₹1,262.27 crore in FY25.

Another example is real money gaming (RMG). After the Online Gaming Act, PhonePe stopped supporting RMG apps in August 2025, and this vertical contributed ₹70.99 crore in H1 FY26 and ₹244.90 crore in FY25.

​The key lesson is simple. Even if user growth is strong, sudden regulatory shifts can switch off revenue streams overnight, making diversification and compliance capabilities very important for stability.

Founder Share Sale Before IPO

Retail investors should also note the pre-IPO secondary share sale by founders. In September 2025, Sameer Nigam and Rahul Chari sold shares worth about ₹3,937 crore in secondary transactions to an existing shareholder, General Atlantic Singapore PPIL Pte. Ltd.

This sale was linked to tax obligations arising from ESOP exercises, and the proceeds were received by the company to settle these tax liabilities on behalf of the founders. ESOP means Employee Stock Option Plan, which is a way founders and employees receive company shares, and taxes become due when options are exercised.

This is not automatically good or bad, but it matters for interpretation. When combined with an IPO that is also fully OFS, it signals that a meaningful part of the IPO journey is about providing liquidity to existing holders, not raising growth capital for the business.

Pincode Shutdown: Diversification and Execution Risk

PhonePe also exited its “Pincode” consumer app after September 30, 2025. Pincode was an omni-channel hyperlocal commerce effort, but the subsidiary incurred heavy losses, including a net loss of ₹205.65 crore in the six months ended September 30, 2025, and ₹283.20 crore in FY25.

​The company has positioned this as a strategy refinement toward building integrated business solutions for merchants rather than consumer-facing commerce. Shutting down a loss-making vertical can improve profitability, but it also shows that moving beyond core payments into operational businesses can carry execution risk.​

Also note that the “New Platforms” segment generated ₹59.98 crore in H1 FY26, where Pincode revenue was previously consolidated. In simple terms, some diversification experiments can cost money first, and not all of them work.

OFS-Only IPO: No Fresh Money Comes Into the Business

The IPO is structured entirely as an Offer for Sale (OFS) of up to 5.07 crore equity shares. OFS means existing shareholders sell their shares to the public, and the company does not get the money raised.

Because there is no fresh issue, PhonePe will receive zero proceeds from the IPO, and the net amount will go to selling shareholders (after offer expenses and taxes). Selling shareholders include the promoter WM Digital Commerce Holdings Pte. Ltd. (a Walmart entity) and investor shareholders, including Tiger Global and Microsoft.

This structure changes how investors should read the IPO. Listing can still improve visibility, governance pressure, and market discipline, but it does not directly strengthen the balance sheet or fund expansion through IPO proceeds.

For detailed information, visit PhonePe’s official IPO page at INDmoney.

Key Takeaways

• PhonePe’s core operating story is strong. It has unmatched scale in UPI, deep user engagement, and clear traction across Tier-2 and smaller cities, along with strong revenue growth and improving operating profitability signals like positive Adjusted EBITDA in FY25.
• ​But the biggest risks are also clear. A 30% UPI volume cap, if enforced without further extensions, can limit new user onboarding and slow growth in its main engine. Policy shifts have already shut down meaningful revenue streams like rent-related payments and RMG, which underlines that regulation is not a background factor here; it is a front-page factor.
• Finally, the IPO structure matters. Since it is a full OFS, it is more about shareholder liquidity and listing benefits than about injecting growth capital into the business. For retail investors, the most sensible approach is to track three things closely before forming a view: how the company replaces discontinued revenue lines, how it reduces dependence on a single regulated rail (UPI), and how it prepares for the NPCI volume cap timeline.

For a seamless application process, visit the INDmoney IPO page.

Disclaimer

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