...Thank you for joining, and welcome to Paytm's earnings call to discuss financial results for the quarter ended and financial year ended thirty-first of March, 2024. From Paytm's management, we have with us today Mr. Vijay Shekhar Sharma, Founder and CEO. Mr. Madhur Deora, President and Group CFO. Mr. Anuj Mittal, Senior Vice President, Investor Relations. A few standard announcement before we begin. This call is for existing shareholders of Paytm and potential investors and research analysts. This call is not meant for the media. If any media representative are on this call, request you to kindly drop off at this point. The information to be presented and discussed here should not be recorded, reproduced, or redistributed in any manner. Some statements made today may be forward-looking in nature. Actual events may differ materially from those anticipated in such forward-looking statements.
Finally, this call is scheduled for 60 minutes. It'll have an presentation by the management, followed by a Q&A. With this, we'll start the call. I request Mr. Vijay Shekhar Sharma to kindly initiate the call. Over to you, Vijay.
Thank you, Pranav. Hello, good evening, everybody. Thank you so much for joining us in this quarter's earnings call. As you are aware, last three months have been quite a rollercoaster in journey of Paytm. We learned a lot of lessons. We learned how to become better and resilient. We also resolve ourselves to be fully compliant according to regulators' expectation and letter and spirit, and I'm very happy to see that our results are indicating that. Expectedly, the February and March month were very, very, uncomfortably bad. At the same point of time, they were filled with lots of lessons for long-term sustainability and growth of the company.
In fact, I'm very happy to tell you, you might have read the earnings release that sort of our worst is behind us in terms of consumer and merchants and few line items of businesses that we, first of all, were proactively able to stop or pause or sort of reduce. We now have started to come back to those line items of businesses and started to build a large revenue and profit-centric company in long term. Many of our teammates in these days have been going through the test of the time, lessons and learning of life, where they have learned what we needed to do and what we have been able to do. In fact, I can say that as Paytmer, I couldn't be more proud of each of our teammates' commitment. In this quarter, we have two months of impact of the business.
Still, we have the performance of the annual level, which is better than last year, and we remain committed to grow sustainability with focus on profits, with focus on the core of the business, which is payment business and cross-selling of financial services business. Overall, it is important to note that as Paytm, we were committed to build India's financial inc- and continue towards in our country's financial inclusion, will remain aligned to our regulators and our government's mission to digitize and formalize formal financial economy. With this, I give my teammate, Madhur, the slide. Then we will talk about few Q&As and way forward. Thank you.
Thank you, Vijay, and welcome everyone, and thank you for joining our earnings call. Just to hit on a few key points and then spend enough time on Q&A. For the full year results, we achieved first year, first full year of EBITDA profitability since IPO at INR 559 crore. Our revenue was close to INR 10,000 crore, with growth across the three businesses on a year-on-year basis. Our contribution profit was INR 5,500 crore and at 56%. And like we said, EBITDA including UPI incentive was INR 559 crore, a margin of 6%.
So all of this is evidence to say that we have significant momentum all through the year, and we are outperforming every metric from the previous year and frankly, some of our internal estimates as well. Obviously, we are, as Vijay mentioned, starting February and March, we started to see impact on our business. Can we go to the next slide, please? For the quarter, we did see a revenue drop of INR 2,267 crore. This was a decline on a quarter-on-quarter basis. Normally, there is some festive impact, but obviously most of this impact, vast majority of it, rather, was due to the transitions that we needed to do starting February 1.
Our contribution profit also declined INR 128 crores, flattish on last year, including UPI incentive and 57% margin. Our EBITDA before ESOP was INR 103 crores. As we mentioned earlier, we got INR 288 crores of UPI incentive, which is over a 50% growth from previous year, including some UPI incentive that we get from our new partner banks. Can we go to the next slide, please? A little bit of a deep dive on our business. Apologies. Deep dive on our business. Our merchant business has started to grow in April and May. Our GMVs have stabilized in the month of May. Our GMV is down 24% as compared to January.
April was the worst, and May has now started to stabilize, at least on a daily transacting user basis, and we expect this to stay stable. Our MTU growth will come only when we get the new TPAP user onboarding commencement from NPCI. On the devices side, we have started acquisition of new merchants and are focusing on activation of inactive merchants. As you would imagine, during February and March, we did see a reduction in our active merchant base, as we were pending migration to our partner banks. So the active base declined by 1,000,000, so roughly about 10% of our overall merchants did become inactive.
This was due to high attrition in February and March, and also because we were not doing new merchant addition, which normally would offset at least the regular attrition, as well as show increase in numbers. We remain very, very committed to the subscription device, device merchants and that business. We continue to innovate and launch newer devices with improved features. A couple of them are on the cover of this presentation. On our payments GMV, we have slightly better news to report. The business has come off its worst. We did have about 12% impact, 12% of our GMV was coming from businesses which are currently discontinued or disrupted.
This also includes the services that we were distributing for Paytm Payments Bank, such as wallet and Paytm Payments Bank net banking, but also other places where we take an approved view. Excluding that, we are down 6% compared to January, and we're about 3%-4% higher than the March lows. So we do expect this to continue to show uptick from here on. Can we go to the next page, please? On payment services, in terms of a little bit of outlook, just to calibrate everyone, the business now becomes primarily about focusing on UPI, which is 80%-85% of our GMV, card processing, and EMI payments processing. So consumers are effectively in India, paying merchants using these three instruments.
And of course, as you know, we have customers on our app, as well as merchants for whom we provide payment processing services. Our GMV was down a little bit, like we mentioned earlier, up on a year-on-year basis. Merchant subscription devices. This is a device base. Our net payment margin is impacted, so INR 748 crore, excluding UPI incentive, became INR 565 crore and INR 853 crore, including UPI incentive. As I mentioned earlier, the business is about UPI, debit and credit cards, and EMI. I just want to remind everyone on the business model. So for bank-to-bank UPI merchant payments, we don't earn an MDR from the merchant, but we do receive subventions from the government, which is a 200, which is the UPI incentive that we talked about.
There are other instruments where we earn, MDR from merchants, including certain UPI merchant instruments that work on the UPI rails, such as RuPay credit card, credit overdraft, and so on, and I'm sure there'll be more innovation going forward, as well as debit and credit card processing and EMI aggregation. So that's, that's where we earn, earn a higher payment processing margin, and also on UPI, we earn bank-to-bank UPI, we earn subvention from the government. Our outlook on payment processing margin is expected to be 5-6 basis points, including UPI incentive. We have elaborated on this in the earnings release. That's just the way the quarterly numbers work.
We expect this to be in the 3-3.5 basis points range on a quarterly basis, and including UPI incentive, to be 5-6 basis points. The last 2 years pattern is that UPI incentive comes towards the end of the financial year, usually in the fourth quarter. I've already talked about merchant deactivation, inactive base, which we are focusing on reactivating and obviously adding new merchants as well. Due to this certain number of merchants going inactive, our subscription per device on an overall deployed basis, the 107 lakh number that we shared, has gone down. We expect that to now go up. Obviously, this always remains subject to market forces and competitive dynamics.
We expect net additions in terms of device, merchants, to come back to past trend lines by Q3. Can we go to the next page, please? On financial services, as we have mentioned, starting in December, on personal loan side, vast majority of our focus has shifted to distribution-led model, for personal loans. This is a new opportunity that we saw, where we have scaled up, a business where for lenders, we do distribution only, and lenders, are responsible for collections. We do not provide collection services on this. This combined with the fact that we are extremely cautious, on personal loan with collections, means that vast majority of our business right now and going forward, at least in the near future, is expected to come from distribution-only model....
For personal loans. Our take rate, overall has gone up a little bit. As we had mentioned earlier, that postpaid had slightly lower, take rates. So when, well, with, with the mix changing more and more towards personal loan and merchant loan, our overall take rates have gone up a little bit. Given that we are going to focus on distribution-only loans, and at least at this point in the credit cycle, being really selective on focusing on primes and, and super prime customers, there might be a slight compression in our take rates, and we are overall saying we should settle this at 3%-3.5%. We are, expanding our focus into insurance broking, as we had mentioned over the last couple of quarters.
This is focused on being extremely product led, so embedded insurance and DIY products. So vast majority of our effort goes into building the best-in-class DIY products for our consumers. On equity broking, two separate pieces of business. One is to have a great platform for equity trading and F&O trading, which is Paytm Money. We're also expanding distribution of mutual funds, where we see strong tailwinds in terms of participation in the equity markets by retail investors. Here, our key focus is on SIPs, where we think we can expand financial inclusion towards wealth management products. Can we go to the next page, please?
So just to double-click on that a little bit, on the consumer loans, we are expanding on different types of distribution-only loans, where we earn only distribution fees, and we have paused small personal loans and postpaid loans, as we had mentioned earlier, and we are helping partners with collections to earn distribution and collection bonus. On merchant loan, our continued focus remains on merchant loans, where we deal with collection. So these are existing payment merchants of Paytm, who are receiving lots of money using Paytm every day. So that remains the core focus. We are starting to see some opportunities and starting to do some pilots on different types of other business loans. These are, for example, larger ticket loans where we are only doing distribution. So that's another part of the business.
As you can see on the right-hand side, we have given you monthly data, just so that you can see what the trend lines of the business have been, during this period of transition in February, March, and April. So in January, we had done INR 3,300 crore of total dispersals. Seven hundred and twenty crore of that was postpaid. Like I mentioned, that is paused. 1,393 of personal loans included both models, distribution only and distribution plus collection. Going in February, March, and April, all of these numbers are on distribution-only model. In merchant loan, we had done about INR 1,100 crore, broadly paused that in February, and now we are starting to see significant scale up in that, close to back to previous levels.
Can we go to the next page, please? Marketing services. This is a high-margin business for us, which is upsell on our payments consumer base, for... And this consists of travel, advertising, and credit cards, actually. Travel and advertising revenues have been impacted, due to lower MTUs during this period compared to the previous period. As we see stabilization and growth in our customer base, we should see this business scale up again. Can we go to the next page, please? We also wanted to share some of the financial impact, so we have broadly broken it up into three buckets. The big picture is that, last quarter, there were obviously a bunch of moving parts, and some of them affected us earlier in the quarter, and some of them affected us later in the quarter.
So the full EBITDA impact, effectively the full quarter impact, will only be felt in Q1, and we do start to expect meaningful recovery from that in Q2, because as mentioned, a number of things, are temporary, and we can restart. So to begin with, the first is, as we had mentioned, I think it was January 31st or February 1st, that on account of embargo on the PPBL products, particularly, inability for customers to add money to wallet, wallet and PPBL bank accounts, there is an EBITDA impact to Paytm as a distributor of those services and for other services that we provided to PPBL of about INR 500 crore on an annual basis. We had given a range of INR 300 crore-INR 500 crore. We think we're going to be at the higher end of that range, unfortunately.
So most of this impact will start from Q1, because for vast majority of Q4, we were offering these services, although on slightly smaller scale, but the volumes were more or less intact. The second impact is, like we mentioned, our MTUs have gone down and our a number of active merchants have gone down. Because of this, in Q1, we expect incremental EBITDA impact of INR 100-INR 150 crores. As we get more consumers and more merchants on the platform, we should see recovery from this EBITDA impact. We also mentioned that we have, in line with certain prudent measures that we have taken, during this period of transition and in line with certain regulatory guidances, paused certain businesses in Q4.
The full quarter EBITDA impact of that would be an incremental INR 75-100 crores, according to our estimates. And again, here, we expect there to be recovery starting in Q2. So overall, we expect Q1, like I said, to be the full quarter impact of this. If you add up all of these incremental impacts, then we come—currently, we're doing about INR 180 crores of negative EBITDA before UPI incentive, and also we're not expecting UPI incentive in Q1. Hence, if we add up all of this impact, we expect Q1 to be INR 500-600 crores. This includes investment in marketing. In February and March of last quarter, we effectively paused most user growth marketing. We have restarted that.
So if you include that impact as well, we expect INR 500 crore-INR 600 crore, and we are confident of meaningful improvement from this number in Q2 and onwards. And the reason for that is that certain products which have been paused, they have some have already restarted, some we expect to restart very soon. And we're also achieving steady growth in operating metrics. We have put a bunch of commentary in the earnings release about how we're looking at cost. There is opportunity for us to create a much leaner organization structure in line with, you know, some of the revenue and profitability impact that we have had. We're very conscious about the fact that we need to relook at every cost.
Our largest indirect cost is, of course, people cost, and we are expecting annualized people cost savings of INR 400 crore-INR 500 crore going forward. Can we go to the next page, please? I'll turn it back to Vijay to talk about our focus areas going forward.
As I said, our attention to governance compliance remains prime attention in next few quarters. So you expect us to do more independent board members and subject matter experts on our subsidiaries and associates and on parent board. And you also expect us to drive lots of internal overall reviewing the workflow processes that we are looking at. Important to note that we are committed to our payments business as core payment business, driving recovery on recovering on consumer and merchant base. That's, that's, that's an important thing. That's our core moat. We will continue to invest in sales team or marketing to drive our new market share or customer count or both merchant and consumer side. And cross-selling wise, we are very clear. We've seen it, it works. The cross-sell is using financial services distribution model.
Obviously, we have seen how we have pivoted on our loan business from collection-centric approach to a distribution only, while on merchant side, the distribution plus collection works out great, so we'll continue to expand on that, and disbursements of insurance and equity mutual fund products. It is important to know that we are looking at our cost structures or the business line items so that we can prune our non-core assets, and we can create a leaner organization focused on profitability. Thank you.
Thank you, Madhur. Yeah, we can open it up to questions.
Thank you. First question we'll take from Alok Srivastava of Bloomberg. Alok, you may please go ahead.
Sorry, could you hear me? Hello?
Yes, Alok, we can hear you.
Alok, you are not audible. Can you please-
Oh, sorry. Sorry. Yeah, yeah, yeah. No, so, so I was asking, what is the, what is the view on, marketing services business? Because, in the earnings release, as well as your comments on the call, there is no mention on the marketing services business, and there is also a mention of pruning of non-core businesses. So, so I just want to understand that going forward, what is going to happen on that business? Because you have been mentioning payment as core and distribution of, or cross-sell of financial products.
Oh, Alok, the key reason that we did not mention much about was that we saw lesser consumer base, and that is why our or the numbers were flattish. As far as the marketing services to merchant is concerned, that remains our fortifying or sort of solidifying relationship with merchant, and that continues as a focus. We have done good job of integrating, creating merchant opportunities, where, you know, we offer advertising, we offer marketing, we offer, like, you know, the APIs-led structure, where we have consumer ticketing, booking, travel, et cetera. So the intention of this messaging was that we are not losing focus and sight from our core, which is payment cross-sell financial services. Marketing services, we more or less see as a support to the payment business, is the reason that we didn't mention much. But you could see that numbers are good there.
They're more or less not dropped significantly.
Okay, fair. So what exactly is non-core, Vijay, when you are saying pruning of non-core businesses?
So internally, we were running many projects, including, let's say, cross-border, and we don't need to do that now. We were running a lot of products which was useful for various bank partners, like a software service to banks, et cetera. So we are trying to find out whether those businesses where... If you notice our cost structure of overall engineering and technology people, et cetera, have been larger than what a pure payment company would have had. So these are those kind of line items.
...Okay, got it. The second one is, what do you have any update on the payment aggregator license that you haven't got so far? And do you see any risk that your existing customer base that you have, that could also be impacted at some point in time? Can RBI say that government has not given an approval and we have reached a point where, you know, the existing customers also, you will have to give up? Do you have any update on that? And also, if you could let us know if over the last three months you have lost any of the big online, you know, payments customers.
So first of all, the RBI has a variable approval, sort of, that inform us in 15 days of getting feedback from government. So there is no delta of that, how long it is or not, in more or less. So we don't foresee as that as a risk there. As of the approval, it is interministerial committee meetings. I think it was due or will be due once the government gets formed. I can't say much comment about when will it be done or so on, so that is why we are in waiting state. As for, uh, losing any online merchant, no, we did not lose any. We have actually focused on deepening relationship by farming relationships. So we so practically speaking, I can share that our revenues from online merchants have grown on a product-to-product basis.
Obviously, our revenues included, other payment instruments like postpaid, et cetera, that we would used to have, which we have paused. So, that part of revenue, if we don't account for, then like-to-like basis, our revenues from our online merchants have increased.
Okay, fair. I just have one more. On your guidance of Madhur, 3-3.5 basis points NPM ex of UPI incentives. Your UPI incentive roughly was 1.5 basis points in FY 2024. And when you look at government allocation to UPI incentive, that number is growing at a slower pace versus the growth of overall UPI P2M GMV. So incrementally, in FY 2025, when you are likely to lose market shares, means I am finding it difficult to understand how you will get 2.2 basis points, when this year you did 1.5. So shouldn't... Means, unless I'm missing something, shouldn't it be more like a 4-5 basis points kind of a guidance for NPM?
Yeah. Sorry. So I just a couple of clarifications. I think the incentive scheme this year was very, very similar to the incentive scheme last year in terms of how they think about industry and non-industry teams, groups of merchants and what the, what the incentives were to the acquiring banks. So it was very similar. As you saw, we got a number which is slightly more than 50% more than the previous year. So that's the first point. Second is on acquiring GMV. Of course, we have not seen a few months of growth, but it's more or less back to, especially UPI acquiring, is more or less back, in fact, probably about flat to January.
So yes, we haven't had the growth that we would have otherwise had from January to April, but our acquiring numbers, including on UPI, is very strong. The third is, purely, Alok, UPI was previously 70% of our GMV, and now it is going to be 80%-85% of our GMV, so that has a little bit of a blending impact as well. And finally, while overall, our UPI incentive sharing with partners is, similar to what we had with Paytm Payments Bank, there are some small, nuance, differences. And the final point is we, Paytm is now a TPAP. So there's a small amount of money that the TPAP gets, which we will also get going forward.
I think, Alok, overall, I also want to tell you that UPI is headed towards MDR. If you notice the indication of different, different payment instruments that have come on UPI. For example, like RuPay on UPI plus INR 2,000 payment, meaning upward of INR 2,000 payment, is MDR charged to the merchant. Credit on UPI also is very clearly out there with the charging to the merchant. And then, prepaid on UPI is also charging towards merchant. And if you notice, regulator has brought three different buckets of merchants, small merchant, mid-size merchant, large-size merchant.
In my opinion, while the government incentives are, like you said, that may not be growing in the same ratio as UPI is growing, but at the same point in time, the percentage growth of UPI in itself is not very, very large as a volume, but on other instruments which are MDR worthy. So we don't see that there is a reason for it not to be in the five bips range.
Fair. Okay. Thanks. Thanks a lot. All the best.
Yeah. And Alok, of course, the simple basics that next year's UPI circular will be very similar to last year's, like last year's was very similar to the year before. So there's a little bit of crystal balling, but,
Yeah.
But, that UPI incentive assumption is based on the same.
Yeah, that's fair. Okay, thanks.
Thank you. I request all the participants to limit their questions to two per participant. We'll take next question from Sachin Salgaonkar of Bank of America. Sachin, you may please go ahead.
... Sachin, now you are allowed to permit.
Yeah. Hi.
Yeah, thank you, sir. Thank you for unmuting me. First of all, Madhur, Vijay, thank you for sharing incremental outlook pointers and data points on recent trends. Really appreciate it. My first question is on loans. I thought one of the advantages value add what Paytm historically had was the collections, given your strong data analytics. Now, going ahead, this entire distribution-only loans, is this something which is temporary, or we could see a change? And a related question, I just wanted to understand how your partners are thinking, because I do understand none of your partners have left you, but most appear to be in a wait-and-watch mode.
Sachin, I believe that, we took a call based on the overall market macro, where the credit disbursements were clearly under stress when it came to personal loans. If you noticed, we have looked at small personal loans, and BNPL is specifically the very small personal loan out there, and our personal loan ticket size were also very small. So we have taken a call that till the time period micro market comes back, we will not do collection incentive-less lead volume in that side. While on the merchant side, as you know, we have a very clear, way to help lender collect, so we continue to do it. So as you are understanding, based on these, that it is a temporary till the time period market comes back, where the collection activity by our platform can generate collection bonus.
If we are not going to generate collection bonus, we are not going to do it. That is what our approach is. This adds an opportunity for us to experiment and bring few more type of credit disbursement, and also hedge. So as they say, there is an opportunity in adversity. We looked at it as expansion of other kind of credit, and we see very good approach there, and it has given us opportunity to partner with few banks also, actually, surprisingly.
Got it. And your thoughts on merchants? You know-
Yeah. Merchant, we continue to do the collection centric.
Got it. And, Vijay, you know, obviously, in opening remarks, you guys did mention you're piloting on other side of loans. We did see gold loans on your, you know, app. So any such categories we should think about, and how big is this opportunity for you guys?
Sachin, we are looking at Micro LAP as of now, and we believe that... We did try gold. So we are trying secure credit also as a part of our experiments, and because it is not material, so we've not mentioned much in the numbers yet. But at the same time, I want to tell you that secure credit, it's, it's more about monetizing the traffic, so we were wondering whether it does make sense or not sense, but at the same point of time, we are integrating for couple of secure credit clients. Especially for our small merchants, Micro LAP makes a lot of sense.
Got it. Last question from me is, you know, your use of cash. Clearly, you have a good amount of cash on your balance sheet. Basis your guidance and where things are, one gets a sense that, you know, the worst is over, per se, for you. So again, from that perspective, wanted to understand, should we see, A, some kind of a buyback to help the stock, or could we see further heavy investments in marketing as you focus in terms of acquiring, more users and merchants?
Sachin, I do not mind telling you that, like I told you, that we will invest in customer acquisition for sure, because that is the first right of our business. At the same point in time, wider use, I will ask Madhur to comment on that.
Yeah. So, Sachin, we do have excess cash, there's no doubt about that. We have about INR 8,300 crore, excluding PNL customer funds. While we have mentioned that the next quarter will be a bit down negative, we will get back very quickly on the path back to profitability. I think over the last quarter, the most important thing for us to do was to finish these transitions, and also to unpause some of the things that we had paused temporarily.
And the important thing was also for us to make sure that we take this opportunity to make sure that our investors and analysts who have been effectively waiting for a full update since the embargo on Paytm Payments Bank have that full information symmetry with us, or as much information asymmetry as we can have. Now that we have done that, I do expect to go back to the board and discuss how much excess cash we have and what is the best use of that cash. Even with the point that Vijay mentioned, is that we do have to invest in marketing, which we have mentioned. And we have to focus on getting back to profitability.
But yes, in that journey, we do have significant amount of excess cash. It is logical for us that unless we're going to spend that cash, we should be just having discussions with our board about how best to return that cash to shareholders.
Thanks, Madhur, and all the best for future.
Thank you, Sachin.
Thank you. Next question is from Vijit Jain of Citi. Vijit, you may please ask your question.
Yeah. Thank you. Hello, can you hear me?
Yes, we can hear you now.
Yeah. Hi. Thanks, Madhur. So, Madhur, my first question is, so aside from the impact on your UPI market share, which we can see in the data, can you talk about overall, you know, the recovery trajectory that you're seeing across merchant categories in general, in GMV terms? So online, in-app, offline, online, off-app, and also on a slightly different vector, if you can talk about enterprise and SME merchants.
... Yeah. So, if you, let's just go to the slide where we had, GMV, trends. So if you see, like we mentioned, there's clearly an impact of disrupted... There's an impact of... Sorry, I'm just going to get to that slide. Just give me a second. Sorry, here you go. So clearly, there's an impact of 12% from, disrupted, disrupted, instruments. And, so, so that's 12%. Overall, like we said, we are down about 6%-7% from January.
Now, if we further break that up into consumer, consumers and merchants, and just to calibrate everyone, when we say consumers, we mean transactions that happen on the Paytm app, which is, for the most part of it, bill payments, as well as some of the commerce categories that are on the Paytm app. And the merchant side is all the offline merchants where we help merchants accept payments, as well as on the online merchants. So that business, if you can see from this chart, Vijay, has been significantly less impacted to begin with, and has stabilized earlier. So even as the consumer side, because of GMV was declining, this stabilized here, and then it had gone up here.
In terms of the cut, further cut of this against online enterprise and what we call sort of soundbox merchants or QR merchants, I think EDC, which is card machines, was the fastest to recover, and is actually higher than January levels. Online was slightly... Online and semi-organized was slightly slower, and semi-organized, especially because we had to do the migration to partner bank. Obviously, that's a very large base of merchants. So to be able to communicate to all of them all at the same time, that there's no reason to be worried, we will be able to offer you continuity of service, is more challenging. So we saw that impact to be a little bit longer, but that has started to come back very meaningfully as well.
So there isn't a huge difference between the three merchant categories as I described them, which is organized, offline, kinda semi-organized and unorganized offline, and the third being online. There isn't a huge difference, but there was earlier and more recovery in the organized offline market.
Got it. Thanks, Madhu. Madhu, my second question is, you know, just looking at the 1Q guidance that you've provided, and thanks for providing that. So if I look at the EBITDA guidance, for INR 400 crore-INR 500 crore of losses, seems to suggest, you will have maybe somewhere around 40% contribution margins, with, you know, whatever fixed cost structure you have. So I'm just wondering, if you could, you know, walk us through how you get from 40% back to 50% contribution margins, which is also your medium-term idea. And, and is there, are there, specific one-offs in this 1Q guidance, or is it all to do with the scale, that you are hitting in 1Q?
Vijay, our indirect cost base is about INR 1,200 crore.
Right.
So if you do that math in the 15-16, and of course, we are working with ranges here, we don't expect a contribution margin to go down to 40%. I would say that excluding UPI incentive, which for simplification purpose, let's just say is Q1, Q2, and Q3 of every year, and Q4, then you get the UPI incentive, and then you have an annual number. Excluding UPI incentive, we might be in the high 40s-50%. And including UPI incentive, for the full year, we would be a few points north of that. So that's sort of the general direction of the business right now. Of course, there are a few moving parts, particularly the unpausing and the ramping up of some high-margin businesses.
So we might be off by a couple of points here and there. So that's where our broad business is landing. With respect to the second part of your question, I wouldn't say one-offs. I would say that, like we mentioned, that there are certain pieces of business which are at different levels of recovery path, right?
Mm-hmm.
So, for example, the user side of the business, just the MDU base, has stabilized, but the growth of that depends on new user onboarding. The merchant side of the business is slightly more under our control in the sense that we are doing enormous amount of reactivation efforts, especially there were 10 lakh odd merchants who went inactive, and we are adding new merchants as well. So that recovery is a little bit sharper, and we'll start to see that even in Q1, let alone, and obviously in Q2 and Q3 as well. So I would call them sort of temporary impacts with different, slightly different recovery paths back to the original trend lines, as opposed to necessarily one-off items.
Got it. Last question, if I can just sandwich that in. The merchant loans is obviously recovered pretty well, right? You're almost back to where you were in January on that... Now, is that and, and you mentioned that as well, Madhu, when you spoke just now. So suffice to say, greater confidence in continuing to ramp this as per original plans going forward from here, whereas consumer loans, obviously, because the product has changed quite a bit, is a little bit slower growth. That's how one should look at it? And within consumer loans, if you can talk about, you know, how much of the April run rate is, you know, these very high ticket loans of, you know, the ones that you launched in December quarter.
Yeah. So, on the first part of the question, on the merchant loan, where we are doing collections, which is vast majority, vast majority of the merchant loan number that you see here, which is INR 971 crore in April. I would say, yes, there has been significant recovery, nearly back to the January numbers. But I should add that we are anyway the reason why we make this distinction between collection and distribution only, is because we do take up, you know, this task of doing the collection. We also take up some sort of a sync-up obligation with the lenders, that our collection should be effective.
Hence, if we are finding any concerns, either as a macro or in our base on potential asset quality deterioration, we take a very, very conservative view, to the extent of working with lending partners to slow down dispersals or to get much more targeted and so on. So even in the merchant loan business, while there is this ramp-up and significant momentum and tailwinds, we are going to be very focused on signs of asset quality deterioration. So I don't want to create an expectation that, you know, we will very soon be doing numbers much, you know, the same as before or much larger than before, just because of the momentum that we are seeing over the last two or three months.
Because our most important metric is whether our lending partners are seeing any kind of asset quality deterioration on businesses where we are doing collections, right? So I would say just a little bit of wait and watch and give us some time to just make sure that... And there could also potentially be some signals of, hey, there's some latent demand here, because when we don't do business in February, then there might be a little bit more to do in March and April. So we are very focused on this business. It is core to us. It has performed very, very well for us in the past, but we are not going to sort of just extrapolate mindlessly.
On the new type of loans, where we do not collect and only get distribution fees, that's a very small part of the business in the last three months. They're encouraging in terms of having done a lot of upfront work and the partner interest in scaling this up, but I think for now, you could call it a pilot. Did I miss one of the, one of your sub-questions, Vishal?
No, thank you, Madhu. That's about it.
Yeah.
Thank you.
Perfect. Thank you.
Thank you. Next question is from Rahul Jain of Dolat Capital. Rahul, you may please go ahead.
Yeah, hi. Hope I'm audible.
Yeah, Rahul, you're audible. Please go ahead.
Yes. So, a part of my question was answered, but just trying to attempt it in a different way. Our guidance kind of suggests that our cost on an absolute basis would be stable. Is it simply coming because of lower net payment margin, or there is more to more built into that to come to that number, or it's more, simply more conservative to begin with?
Rahul, I think it's a couple of things. One thing I should point out is that in Q4, our marketing spend was roughly half of what we spent per quarter. And that was deliberate, because in February and March, we want to make sure that transitions are completed, as opposed to really focusing on specific user campaigns, right? So we do expect in Q1, our marketing costs to be higher than Q4. Because now we are seeing, and you saw some of the ads, hopefully at the beginning of the call. These are ads that I think we have launched or about to launch, Vijay can tell me. So these, this is really just straight from the oven, and we're going out with that. So we will spend more on marketing. Q4 was abnormally low.
There is that one impact, and I think we've mentioned that in the earnings release. But it will be partially offset on the indirect cost side by some of the people cost actions that we have taken in the past, and the sort of expectations that we have created here of INR 400 crore-INR 500 crore of annual people cost savings. That takes a little bit of time to come through fully in the financial numbers, so we've not seen all of that in Q1.
Right. Right. And you know, for Vijay, while you know we have closed down some businesses like postpaid, given the greater discomfort on the possibility of converting into cash or any other factor, but do we see a possibility of recreating this product as distributor or manufacturer in a way that better aligns with the comfort zone of the norms?
... First of all, BNPL was not against the norm, which means that we could potentially bring it back how it was, number one. And secondly, there is an opportunity of credit line on UPI, which is very adjacent to this. So yes, there are two opportunities.
So, in one of your comments where-
We paused it because small ticket loans were going through extraordinary delinquencies.
Right. Right. And in your comment, in the press release, you mentioned that that happy to share some of these products have been restarted, and they are more in the process of starting soon. So you're trying to indicate products even as far as, like, wallet or postpaid, or those could be a little more into future?
This is because most of the products are in partnership with other financial services organization, including postpaid, including wallet, now, if you notice. So a lot depends on technology comfort, scale comfort, then piloting, starting. So that is why I have said, and literally everything is on the table. We-
Yeah.
We need to start FASTag distribution, as you might have seen.
Yeah, I completely understand the way a lot of things have happened, but I think importantly, like, one new product launch we did on the device side. But newer product has to be the instrument to reimagine the TAM, which we always was offering. And if some of these products don't exist, then the TAM has to get redefined back to the similar or higher size with newer launches. So we're happy to hear more inputs on that in the time to come.
Absolutely, Rahul, you're correct, and you have pointed out towards a product that will be our attention and, much less of our attention. It is definitely dependent on our partners, their markets, response, et cetera, et cetera. So we will do what our partners are interested in. Our technology and distribution becomes our mode.
Appreciate it. Thank you.
Okay, thank you.
Thank you. Next question is from Gaurav Singhal. Gaurav, you may please go ahead.
Yeah, hi. Thanks for taking my question. So I wanted to understand your view on breakeven, given that next quarter, from what I understand, is expected to be, like, a bottom of INR 500-600 crore loss, and then improvement from there on. But if I just look at the various moving parts here, I mean, the payment, net payment revenue now, it seems to structurally lower. And then on the lending side, also, you mentioned, you're not gonna scale it up aggressively from the April number that you have disclosed. So maybe that's also more gradual scale up. And then marketing and other is probably more, I guess, trend in line with GMV. So if we put all of this together, it seems there is not a lot of path near term for breakeven.
But I'm, I'm wondering if you have a different view or if you feel like in 4 or 5 quarters, you do see things coming to breakeven again, and then if yes, what kind of path do you have in mind?
Thank you, Gaurav. This is Madhur, maybe I'll take your question. So I think there are various drivers, right, for our business. So one is on the payment side itself, we are seeing, as you saw, GMV recovering, and obviously, GMV has a direct impact on margins. Payment processing—the payment processing money that we can get, like, in absolute rupee and dollar terms. So that's the first one. Second is, as we mentioned, the sort of, if you will, a little spike in the inactive merchants, which we are now fixing and correcting and reactivating, does result in additional subscription revenue, which effectively goes straight down to the bottom line, or at least to the EBITDA line.
So that is a very positive contributor going forward. On financial services, I think, they're a very interesting conversation for us to have with our lending partners now that the payment business has stabilized, as we have said, the presentation. I think those conversations were, quite frankly, a little bit harder in February and March than they are now, especially now we are sort of public with all of these numbers. So I think those conversations are a lot easier to have now than they were in February and March. I think it's hard to be very, very specific about, you know, which one of these line items will, you know, do better than expected and which ones may not do, may not grow, you know, so very significantly from here.
What I was commenting to Vijay was just our basic approach to be conservative. We are not seeing issues in asset quality in merchant loans, but I also wanted to be calibrated about creating an expectation that that would automatically translate into us, you know, dramatically growing the business. But there are opportunities in lending, both in the distribution-only model and personal loans, as well as scaling of merchant loans, both with collections and without collections, and the pilots that we have in secured lending. In addition, insurance and wealth can become positive contributors, going forward. These businesses are not quite off the scale of our lending business right now, obviously, but there is incremental money to be made. And on our commerce and cloud businesses, I do think we can do a lot more....
about being sharper, about getting slightly greater monetization per MTU or engaged customer than we currently do. And finally, on the cost side, while, like I mentioned, in Q1, we'll spend more on user growth than we did in Q4, because Q4 was abnormally lower, we are very focused on making sure that we are lean as an organization, and that we have a lot of discipline on cost. So across the platform, there are many, many opportunities.
I think, we did sit down and think about whether this is time for us to give slightly longer term guidance beyond Q1, and we thought that as we are having these discussions with partners, as well as internal conversations about where the next INR 100 crore, INR 200 crore, INR 500 crore of bottom line is gonna come from, and over what time period, we thought it's better to wait. We should give the Q1 guidance, but, it is better to wait, until at least July, if not a bit longer, to be a little bit more specific about when exactly we, we get to with our breakeven.
Hello. Hi, thanks for that. That's very helpful. And then the other question I had was on this adding MTUs. So you mentioned, you would be discussing with NPCI, which I think was one of the points that RBI mentioned. But then the other point was also, to finish migration of all the existing users, existing UPI users. So has that been completed? And is the discussion with NPCI the only outstanding point, or, or is something else left to to start adding, MTUs?
I think, as a migration, logically, the migration was of the system and technology, because as of consumer, as you can guess, let's say we have X million customers, only a fraction of them come, and not every one of them will effectively come in the lifetime to get migrated. So we can... And we do the migration of these customers as and when they come on the app. So we are very actively converting them and migrating them. As of any other concerns or inputs, we are in active conversations with NPCI, and they're very supportive. And, we are hopeful that they should give us this in due course. If they get fewer feedbacks, we solve them.
Got it. So just one last thing. So on this UPI, you mentioned the bank-to-bank UPI is the one which does not have any monetization apart from the incentive. How much is that as percentage of the total UPI GMV for us, roughly?
I think the intention is to say, when you pay from a bank account, which is the primary way of making a payment on UPI, the other payment instruments, like credit, credit card, overdraft, prepaid, are very minuscule, not even 10%. I'd rather say a few single %.
So, if I may just add.
Sure.
Out of about annualized INR 2,000,000 crore, we have said 80%-85% is UPI, of which is very small percentage is non-bank to bank. The vast majority of that 80%-85% is bank.
Okay. Thank you.
Thank you.
Thank you. We will extend the call for another 10 minutes because there are a few questions. We'll take next question from Jayant of Jefferies. Jayant, you may please go ahead.
Thanks for the opportunity. First one is to Vijay. About this INR 400 crore-INR 500 crore of annualized people cost savings, how are you thinking? Can you help us understand the journey of these savings? It's almost 15% of your current employee cost base. And how would this play out between the field force versus the HO? We saw you had almost 3,500 reduction in the count of sales employees. So if you could just help understand the journey of these savings, how will this play out?
So first and foremost, I want to tell you, Jayant, that we will continue to add more sales executives. And this turnover of sales executives, if at all, is due to that there was uncertainty, what kind of product that we sell, when we are migrated, other banks have started, and so on. So instead of retaining, we let them continue to churn and not bothered about them. But I want you to know that we will increase that overall number, and we are committed to grow our merchant side ecosystem by adding more sales, number of people. As for overall cost, there is a clarity of number of product and technology and operation side. There is a tremendous amount of scope available, so we are able to add that.
I mean, very simple, customer care is merchant care, is the systems and people and operations where, let's say, Excel sheets move instead of the system could get modified. So a lot of space of cutting that kind of slack. It's-
Majorly from non-field areas?
Yeah. Oh, yes, yes, yes. We will definitely increase the number of people in field area. It will be... I mean, given our attention and direction, our machines are chugging along well in terms like they're working smoothly with our partner bank. We will continue to increase the number of salespeople that we look at on that side.
The device deployment rate, you expect that to go back to, I mean, maybe not 1.5 million, but maybe at some level of that, not what we've seen currently?
Well, Jayant, I can tell that I track this daily, and I'm happy to tell you that some of our numbers are actually very, very much going towards the previous numbers soon.
Oh, great, great. That, that's great to hear, Vijay. The second one is for Madhur. On the margins on lending business, if you could help us understand, there was an element of collection expenses as well, right? Which used to be a part, I think, of the-
... other contribution expenses. So if you could help us understand the margins on lending products, where you do collections and where you don't do collections. How was that before? And now that you're seeing more of these non-collection products, how will the margins on the lending business play out?
So, Jayant, on the, let's say, contribution margin basis or EBITDA margin basis, because some of this is people cost, the margins for similar size loans are not that different, whether it is with collections or without. Obviously, with collections also means that some of the collection revenues and collection incentives are, are slightly back-ended. So there might be a little bit of a timing issue there. But on a, bottom line basis, they're not particularly different. It is possible that, some of the higher ticket loans might be to even more prime customers, or if it's higher ticket, then the, you know, take rate might be slightly lower. The average, take rate of distribution on the loans is, slightly higher than, the loans that we do with collections.
There could be those elements as well. But like for like, the bottom line is not very different.
Thank you. Thanks.
Thank you, Jayant.
Thank you. Next question is from Saurabh Kumar of JPM. Saurabh, you may please go ahead.
Hi. Thanks for this. So just two questions. One on slide 6. You basically say that the average, you know, default-wide subscription revenue, which is 90, will go down to 80 and then recover back to 100. I'm wondering what is driving that? It is just that you're expecting more follow-up in Q1. So is it just the active rate, which is basically declining in Q1 and going back to Q2, or is there something else, you know, some discounts which you're giving, which probably come out? So that's one. And the second is, again, on the indirect cost, which is whatever you kind of guided to, will it be fair to say that your full year indirect cost should be in the INR 4,500 crore range? These are the two questions. Thank you.
Yeah. So on the first question, it is purely kind of the full quarter impact of how we have exited Q4, Saurabh. So obviously, January was business as normal, active rates or inactive rates. And then February and March, we saw this 10 lakh drop. So we have exited Q4, slightly, 10 lakhs worse, if you will, than our normal active rates would suggest. In Q1, we do see recovery in those active rates, and early signs are positive, but, it is because you exited weaker, that, for the overall quarter, there is slightly less subscription revenue. So to clarify, we're not seeing deterioration in Q1, but we are seeing in Q1, the full quarter impact of the deterioration we saw in Q4.
On the second point-
Yeah, so it's just a percentage active rate change is what is driving this? Okay. Got it.
And also the fact that we could not add new merchants for all of February and portion of March, and we are adding new merchants now. So those merchants are obviously active, and early activation active rates are quite high. And to your second question, I think give or take 5%, sort of range, that broadly sounds right.
Okay. Thank you very much.
I should mention that while I think to get to that number, you have taken out INR 400 crore-INR 500 crore of savings that you mentioned.
Yeah.
The marketing number would vary a little bit, depending on what actions we are taking in Q2, Q3, Q4. Like I said, last year, we did spend about INR 100-INR 150 less than what we expected to because of the February and March impact.
Great. Thanks.
Thank you. Next question, and the last question is from Piran Engineer of CLSA. Piran, you may please go ahead.
Yeah, hi. Thanks for taking my question. Am I audible?
Yeah, you're audible.
Yeah, thanks. Just firstly, if you can just comment on how many lending partners are active with you as on date. In this sourcing-only model, is there some sort of FLDG agreement or any sort of that, that sort of stuff? Because there's a lot of media speculation around it. So I just want you to clarify this.
Yeah, Piran, none, none, none of the lending partner has committed any agreement with us. So practically, depending on disbursement rate, yes, no, maybe, and so on, so everybody is on. As for FLDG, we've not given or don't plan to. We don't see... We rather would go in disbursement-only model, like we are talking, as you can see. And as for media report, we did file a stock exchange clarification next day, so hopefully that clarifies.
But Vijay, just to be fair, this INR 2,000 crore of disbursements you all did in April, that has come from all seven partners. Have all seven contributed, or is it some are dormant, some are- because at least one partner is public about-
Uh, uh, so-
wanting to reduce the share to zero.
Yes. So not every partner is active or disbursing at all.
Hence my question, can you give a sense of how many are active with you?
Again, this is more about the comfort, like I told you, Piran, that which state of business stability are we at? That is what the potential partners... So we already have enough and ample supply of capital, as you can guess. We are doing these numbers as you are seeing them. So we rather are trying to find out for disbursement of... In our merchant side, as you can see, the numbers are showed up, and we are expanding on that... but up to a particular level. But we are more focused on disbursement-led partners, which could be many more different kind of partners than the same partners as before. So the approach here is not necessarily to go to the same partner for the same product, if you notice.
Okay.
Because we are not doing BNPL and personal loan with collection, so we may not need to necessarily seek that partner.
Piran, I, I'll just, I'll just add one other thing, which is that, while we have had the disruptions that we had in February and March, and the pausing of business and unpausing of some of those already, and unpausing hopefully more later, I think you also have to keep in mind the overall context of the market, where partners who are doing lending with players like us also have different views about what their approach should be, given the overall market backdrop, right? And we have always worked with our partners on the basis of, you should only lend to people that you're comfortable lending to, because we don't give you FLDGs, right?
Partners will take certain views from time to time, which is why we have been talking about how many partners we have, and our desire and focus to increase those number of partners, because we don't control partner decisions, nor do we influence partner decisions, nor do we try to catalyze partner decisions by giving FLDGs.
Got it. Okay, that's clear. Just a couple of clarification questions, if I heard them correctly. Did you mention that the UPI incentive sharing with the new bank partners will be similar to what you had with Paytm Payments Bank?
Our overall commercials are similar. Some of the nuances of arrangements might be different.
Okay.
Because remember, remember, in the case of Paytm Payments Bank, Paytm Payments Bank was running UPI. It was hosted on Paytm app for customers, and we were also a merchant acquirer for Paytm Payments Bank, right? Our model going forward as TPAP is different, right? So, the arrangements that a TPAP would enter into with a partner bank, a sponsor bank, would be slightly different than the arrangements that we had in the past, but the commercial impact to us is roughly the same.
Okay. That, that clarifies. And secondly, could you just explain this thing on the previous participant's question? The subscription, device rental is different for active and inactive merchants. Is, is that how it works?
Oh, sorry, sorry. No, sorry. That was in the clarification, so it may be... If I understood the question correctly and the way I explained it, is that, I think the question was: do you-- You have said 90 will go to 80.
Yeah.
Does that mean that you are seeing deterioration in ARPU per customer in Q1? And the point that I was making is that we saw deterioration in ARPU per customer in Q4-
Yeah.
especially on account of the inactive base going up by 10 lakhs, like we have described. So we have exited March with that state of play, and while we actually expect recovery of that, not full recovery, but partial recovery of that in Q1. So we expect Q1 momentum to be upwards, whereas Q4 momentum in the last two months was downwards. But as you think about what your weighted average ARPU per device would be in Q1 versus Q4, that will be downwards because you exited Q4 weak.
No, I got that, Madhur. So it basically means that an inactive merchant pays you lower rent than an active merchant, right?
An inactive merchant actually does not pay us rent, because we deduct from their settlement. Of course, we have other ways of sending a salesperson to go collect subscription fees and so on, but that is significantly harder, right? So an active. The surest way of being able to earn subscription from a merchant is if they are active.
Is to do transactions.
If they are active.
Okay. Understood.
Exactly. Because if they do 1 or 2 transactions, even 1 or 2 transactions a month, obviously merchants, some of those merchants do many, many, many more than that on an average. But if a merchant goes inactive for whatever reason, then it is significantly harder to collect, and obviously then we use remote reactivation efforts and then on-field reactivation efforts. And those activation efforts take a little bit of time to kick in on a base of 10 lakhs.
Okay, okay, now I understood. Got it, got it. Thanks for the clarification, guys, and all the best.
Thank you, Saurabh.
Thank you. Thank you, Saurabh .
Thank you. With that, we come to an end of this call. A replay of earnings call and a transcript will be made available on the company website subsequently. Thank you all for joining.
Thank you, everybody.
Thank you.