With strong growth in Q2FY23, India’s leading payments and financial services company Paytm reported revenue of ₹1,1914 Cr, a surge of 76% year-on-year (YoY). The fintech giant’s contribution profit grew 224% YoY to ₹843 crores, leading to a contribution margin improvement of 44.1% of revenue in Q2 FY23. The company has seen platform expansion and increased monetisation across all its key businesses while limiting indirect costs, leading to a 61% YoY improvement in EBITDA before ESOP costs to ₹166 crores.
Reflecting upon the overall performance in Q2FY23 in an earnings call held on Tuesday, Paytm’s management – Vijay Shekhar Sharma, Chairman, MD & CEO; Madhur Deora, Group CFO & President, and Bhavesh Gupta, CEO – Lending & Offline Payments – said the company remains ahead of its profitability plans and is confident about the September 2023 operating breakeven guidance.
Vijay Shekhar Sharma said Paytm has acquired 80 million customers while its merchant base has expanded to nearly 30 million. He added that it has now become an “online omnichannel” platform, with payments at the core of operations. Paytm’s overall payment services revenue grew 56% YoY, while net payment margin grew by over 400% to ₹443 crores. Sharma added that the company’s commerce business has also achieved profitability.
Demonstrating 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 breakeven target ahead of the guidance. Madhur Deora, Group CFO & President, said, “We have given guidance for breakeven by September 2023, we are ahead of our plans, but we would like to maintain that guidance.”
Emphasising 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 with Paytm’s strong platform expansion and accelerating monetization across businesses, “payment is profitable” and “there is a benefit from high margin loan distribution”.
Financial services sees ‘incredible growth’
The company’s credit distribution business in partnership with top financial institutions also witnessed increased momentum this quarter, with disbursements reaching an annualised run rate of ₹34,000 crore. Paytm disbursed 9.2 million loans (up 224% YoY and 8% QoQ) in Q2FY23, amounting to ₹7,313 crore (up 482% YoY and 32% QoQ). This has been the biggest contributor to the company’s financial services segment, which contributed to 18% of total revenue in the second quarter.
Vijay Shekhar Sharma noted that while there has been “incredible” year-on-year growth, it made 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.
Highlighting Paytm’s loan distribution business, Bhavesh Gupta, CEO – Lending & Offline Payments said, “We are happy to inform that our lending business has seen no disruption after RBI 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% penetration in terms of MTU.
Gupta also pointed out that Paytm Postpaid has been one of the big drivers of personal loan adoption, as over 40% 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.
As merchant loans also saw great momentum, supported by strong growth in devices, Gupta said,“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.”
