Fintech major Paytm hit EBITDA level profitability (before ESOP costs) of Rs 31 crore in the December quarter —three quarters ahead of its guidance. EBITDA before ESOPs is a new-age metric start-ups use to ascertain their operating profits. Paytm, however, continues to be a loss-making business at a consolidated level. But it managed to narrow its consolidated net loss from Rs 778 crore in the December quarter of FY22 to Rs 392 crore in Q3 FY23.
Vijay Shekhar Sharma, Chairman, MD & CEO, Paytm, said in a statement to shareholders, “This has been made possible due to the relentlessly focused execution by our team. The team was asked to focus on growth with quality revenues that contribute to the bottom line. We have achieved this milestone without losing sight on growth opportunities and keeping all compliances as well as risk factors under a strict watch.”
Reduced indirect expenses
Paytm’s operating profitability was a result of its indirect expenses (excluding ESOP cost) dropping to 49 per cent of revenues driven by improved operating leverage. This stood at 58 per cent in the year-ago period. ESOP costs, meanwhile, jumped 32 per cent from Rs 442 crore in Q3 FY22 to Rs 584 crore in the just-ended quarter.
Analysts gave Paytm a thumbs-up for achieving EBITDA profitability ahead of guidance, but also said that “sustaining it is key”. “As of 3Q end, Paytm has Rs 89.57 billion ($1.1 billion) outstanding cash balance. Till Feb 3, 2023, Paytm has bought back 14.67 million shares and utilized Rs 7.96 billion cash, at an average price of Rs 543/share,” BoFA Securities said in a report.
Paytm shares are up more than 6 per cent to Rs 556.70 on the BSE.
Robust loan disbursals
The fintech platform continued to post robust growth in revenues driven by loan disbursements and increase in merchant subscription sales. Paytm’s revenues in Q3 FY23 stood at Rs 2,062 crore, growing 42 per cent from Rs 1,456 crore in Q3 FY22.
Number of loans disbursed by Paytm increased 137 per cent YoY to 10.5 million, while the value of loans surged 357 per cent YoY to Rs 9,958 crore in Q3 FY23. Paytm also added 3.8 million new merchant subscriptions in the last 12 months (Dec 2021 to Dec 2022).
“As of December 2022, 8.1 million borrowers have taken out a loan on our platform, adding 1.4 million new borrowers this quarter,” the company revealed in its earnings statement. “Growing borrower base offers tremendous upsell and lifecycle benefits. Our payments consumer and merchant base offers a large addressable market, thereby providing a long runway for growth,” it added.
Continued growth in payments
Payment services continue to be at the core of Paytm’s business, “and support the acquisition as well as retention of customers and merchants in a cost-efficient manner”, as per the company. The fintech’s Average Monthly Transacting Users (MTU) continued to grow to 85 million for the December quarter, a jump of 32 per cent YoY driven by customer acquisition through UPI and new use cases.
Payment revenues, meanwhile, grew by 21 per cent YoY to Rs 1,197 crore in Q3 FY23. Merchant payment revenues outpaced consumer side revenues. “Merchant subscriptions drive higher revenues and payment volumes, and also provide an attractive funnel for merchant loans,” the company explained.
However, payments remains the most competitive vertical with the likes of PhonePe and Google Pay breathing down Paytm’s neck. “Digital Payments is super competitive. PhonePe and Google Pay have gained market share ahead of Paytm on UPI payments (P2P). In addition to rival platforms, several merchant payments players like Razorpay, Pine Labs, etc., have built vertical specific platforms and command a head start, especially with the mid-market and large enterprise customers,” Citi India stated in a report.
Starting Q3 FY23, Paytm also put in place agreements with its lending partners for Paytm Postpaid. It is now incurring interchange costs which are included as a part of Payment Processing Charges (Rs 78 crore for December quarter).
CEO Sharma summed up the path ahead by saying, “I believe the opportunity in our country for newer payment and credit disbursement solutions is huge, which gives us quality revenue and attractive profit pools to address. With our focus on growth and keeping a tight vigil on operational risk and compliances, I am very confident that we will soon achieve our next milestone of becoming a free cash flow generating company.”
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