Incredible growth in financial services, stronger monetisation puts us ahead of profitability plans: Paytm management

The company has seen a stronger monetisation across all its key businesses while limiting indirect costs, leading to a 61 per cent YoY improvement in operating profits or Ebitda before employee stock ownership plan (ESOP) costs to Rs 166 crore.

Reflecting upon the strong overall performance in Q2FY23 in an earnings call held on Wednesday, Paytm's management - Vijay Shekhar Sharma, Chairman, Managing Director and Chief Executive Officer (CEO); Madhur Deora, Group Chief Financial Officer and president, and Bhavesh Gupta, CEO for Lending and Offline Payments - said the company remains ahead of its profitability plans. However, the company maintained its guidance and said that it is confident about the September 2023 operating break-even target.

Vijay Shekhar Sharma said Paytm had acquired 80 million monthly transacting users while its merchant base has expanded to nearly 30 million. He added that it had now become an "online omni-channel" platform, with payments at the core of operations. Paytm's overall payment services revenue grew 56 per cent YoY, while net payment margin grew by over 400 per cent to Rs 443 crore. Sharma added that the company's commerce business had also achieved profitability.

Explaining Paytm's successful business model, Sharma said, "We believe our payments stack, where we give merchants payment offerings and then enable them with cloud and commerce services, makes for a scalable, large, profitable business model."

Strong Q2FY23 performance puts Paytm ahead of profitability plans

Multiple analysts during the call mentioned that Paytm's speed of improving Ebitda before ESOP costs could see the company achieving its break-even target ahead of the guidance.

Madhur Deora, Group CFO & president, said Paytm was on track to achieving operating break-even by September 2023, adding that the company was currently "ahead" of the plan. "We have given guidance for break-even by September 2023, we are ahead of our plans but we would like to maintain that guidance," he said.

Highlighting the improvement in operating leverage, he added: "We had a very strong quarter. We are just under a billion-dollar run rate. Significant step change in contribution profit in the last 12 months. Our Ebitda before ESOP cost is starting to see operating leverage come through."

"We are very proud of the fact that we continue to invest in our business - technology, sales and marketing. Despite increasing investments which is important for long term growth, we are able to scale operating leverage," he added.

Deora further pointed out that Paytm has seen strong platform expansion and increased monetisation across key businesses, adding that "payment is profitable" and "there is a benefit from high margin loan distribution".

Financial services see 'incredible growth'

Paytm's loan distribution business in partnership with top financial institutions also witnessed increased momentum this quarter, with disbursements reaching an annualised run rate of Rs 34,000 crore. Paytm disbursed 9.2 million loans (up 224 per cent YoY and 8 per cent QoQ) in Q2FY23, amounting to Rs 7,313 crore (up 482 per cent YoY and 32 per cent QoQ). This has been the biggest contributor to the company's financial services segment, which contributed to 18 per cent of total revenue in the second quarter.

On Paytm's financial services business model, Vijay Shekhar Sharma noted that there has been "incredible" year-on-year growth, but indicated that it makes up for a "very small fraction" of the customer base. "There is an incredible amount of headroom for growth. We continue to believe the loan disbursement business will play an important role for democratising credit," Sharma added.

Elaborating on Paytm's loan distribution business, Bhavesh Gupta, CEO for Lending and Offline Payments, said, "We are happy to inform that our lending business has seen no disruption after RBI (Reserve Bank of India) guidelines on digital lending and all three businesses showing tremendous growth."

He said Paytm Postpaid continues to demonstrate great penetration to merchants and has the largest acceptance of any credit instrument in the country. He added that Paytm Postpaid has ample headroom to grow as it has 4 per cent penetration in terms of monthly-tracked user (MTU).

Gupta also pointed out that Paytm Postpaid has been one of the big drivers of personal loan adoption, as over 40 per cent of such disbursements in Q2FY23 happened to existing Paytm Postpaid users. He added that customer acquisition is unlikely to see any slowdown over the next few years.

He also highlighted that merchant loans also saw great momentum in seeking merchant credit, supported by strong device growth. "This quarter, growth was absolutely bang-on. On the back of good device growth, in coming quarters we will see great momentum in merchant loans," Gupta said, adding that there are 1.5 million merchants who are pre-qualified for loans valuing up to 2 billion dollars. (ANI)