Thank you for joining, and welcome to Paytm's earnings call to discuss our financial results for the quarter ending June 30, 2020. 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 announcements before we begin. The information to be presented and discussed here should not be recorded, reproduced, or distributed in any manner. Some statement made may be forward-looking in nature. Actual events may materially differ from those anticipated in such forward-looking statements. Finally, this earnings call is scheduled for 60 minutes. It will have opening remarks by the management, followed by Q&A. For Q&A, kindly utilize the Raise Hand feature on your Zoom dashboard if you seek to ask a question.
We will unmute your line, take questions in the respective sequence and within the scheduled time. Please ensure your name is labeled as first name, last name, followed by the company name for us to be able to identify you. We also request you to limit your questions to two per participant. A replay of this earnings call and a transcript will be made available on the company website subsequently. With this, I would like to request Mr. Vijay Shekhar Sharma to kindly initiate the call. Thank you, and over to you, Vijay.
Hi, good evening, everyone. Thank you so much for joining. I'm very happy to tell you that, in this evening, we have all come together in our office and are joining from single place. That's why you're not seeing us if you're looking at number of attendees in the call. As you might have seen, our quarter performance has been in line with what we had suggested and, what our operating metrics are showing, the resilience and the capability of the Paytm product and sort of service resilience out there. I believe that this is just a beginning of the end of, I would say, the tough times or the, the numbers that have sort of stayed at flat level from quarter to quarter.
This quarter was the full impact of the situation that we got in, and as team and as a company, we all are committed completely to run it as a fully compliant business. My team and us are also committed to make sure that we go back to profitable quarters very, very soon. We are hoping and working on making sure that we deliver at least one profitable quarter in this financial year, as soon as we are able to see a lot more clarity coming our way. As team, our focus is on going back to the payments and cross-selling financial services as a core business. Our marketing services, where we help our merchant to expand and sell more to the consumers, is a great opportunity, and we believe that we are able to deliver on that also.
You must have seen the segmented numbers, and we're happy to take the calls. In fact, just so that we all can take more Q&A, we've decided to do away with the early presentation that we give, because more or less, we have already written the summary release that you all would have got it. So we'll right away start with the Q&A. So happy to take as many question and answer today that we are able to answer. Yeah, over back to moderator for questions.
Thank you, Vijay. We will now proceed to Q&A. A reminder to utilize the Raise Hand feature on your Zoom dashboard if you seek to ask question. We will unmute your line and take questions in the respective sequence of raised hands. First question is from Vijit Jain from Citi. Vijit, you may please go ahead.
Great. Thanks for the opportunity. Vijay, just alluding to your opening remarks, when you said you are aiming to deliver one profitable quarter this fiscal year, just wanted to understand if you're referring to operating breakeven or PAT level breakeven and, you know, is the target to achieve that inclusive of UPI incentives? Just trying to get a sense on the roadmap from here to breakeven in this fiscal year. That's my first question.
Thanks, Vijit. Like you said it very, very well. We are removing of the... Obviously, I do believe that last quarter where there will be a lump sum UPI incentive, hopefully sizable again this year, we will definitely love to do. That quarter should be profitable, but there is no doubt about it, we are looking at it without that extraordinary one-time item. So you can expect us to talk about EBITDA breakeven before ESOP cost and before adding UPI incentive.
Okay, great. Vijay, my next question is, you know, in terms of, the new user acquisitions for UPI, which you've not started, since, and, obviously, when you are able to do that, that should help you start to grow and claw back market share in UPI, more meaningfully. I'm just trying to understand if there are any specific targets or roadmaps that have been set for you, from NPCI before you can resume that. Is there any... Are there any defined step, milestones to achieve, or is that more of a, you know, you interacting with them and, you know, getting approval from them to go ahead with that? That's my second question. Thank you.
Vijit, we are in process of completing technology and consumer migration. As you are aware, we have done about merchant everything, and in consumer, there is a little bit of multi-bank ecosystem, so all banks have to participate, and then our primary partner, Yes Bank, has to also expand on certain systems technologies. We are in the last leg of nearly the tail end of the migration. Once the migration is complete, then we would go back to NPCI to request to add new and incremental customers.
Correct. Thanks. If I can just ask one last question. From the, you know, in the last earnings call, I think the April 2024 run rate for consumer and merchant loans was something like INR 20 billion a month. The full quarter number seems to suggest there's a moderation from April on into May and June. So can you talk about the most recent, you know, consumer and merchant loan trends that you're seeing in June 2024, and any other thoughts on?
So, Vijit, on merchant loan, we had suggested that there is a pent-up demand, and we knew that this pent-up demand would mean that there is a little bit of surge as soon as we opened up. But in due course, if you look at it, there are more number of users whom I believe will come, and our lending partners, thanks to the overall overarching credit environment, will get interest of our lenders. So I'd say that right now, we are not looking at very aggressive growth in credit disbursement, thanks to our lenders continuing to pursue prudent according to how regulator is suggesting policies. But at the same point of time, this also means the quality of credit, et cetera, for them is coming out to be great as they're seeing the data from their side on the books, et cetera.
So core philosophy, I'd say that we remain very, very disciplined with our lender partners, where we suggest them that they should be taking the decision which they want to take, and this is where we are. So net-net, we don't have much guidance to give, but that in due course, once the systems and technologies are back, as you know that right now we are holding up in terms of new user or holding up in terms of incremental merchant, we have started adding that we have written. So I'd say that you can expect that a quarter, in this current quarter and the next quarter, the numbers should get better, but we're not going to say that it is going to be dramatically better.
All because that it is rather a larger macro and attention to the disciplined disbursement by our lender, which is a good thing, not because of any other reason.
Got it. Thanks, Vijay. I'll jump back into the queue.
Thanks.
Thank you. Next question is from Adarsh.
Hi, Adarsh.
Hi, [Shekhar and team]. Congrats! So the question is on first on expenses. You all have called out that there has been some one-off expenses in the indirect costs. Except employees, everything is kind of up. So just wanted to understand what the roadmap here would be, right? If you add all of that up, it's INR 1,300 odd crores, up from about INR 1,200 crores last quarter. So if you can talk about what were the one-offs and what's the likely outcomes as you again ramp up some of the other businesses.
Yeah. Thanks, Adarsh. So on... So there are four main components of indirect expenses. The first one, the largest one, is employee cost, and we had mentioned in the last quarter that there's going to be tight focus on making the company a bit leaner. And as a part of that, our employee cost is down just about 10% quarter-over-quarter. We do expect it to go down over the next few quarters by another 5%-7%. So on employee cost, have good trend lines. On the second cost is marketing expenses. Again, we had mentioned in the last quarter that our marketing expenses last quarter was significantly lower than trend lines.
This quarter, we have spent a little bit more than we would normally, and that was really, we wanted to make sure we take this opportunity to inform all our customers and merchants that the services are working very smoothly without disruptions. And also, you may hopefully have seen some of our ads that talk about how we are now powered by four banks. So that was the big campaign that we did, along with some BAU things. Going forward, I expect marketing costs in the rest of the year to be at a lower trajectory than what we did in this quarter on an average. The third cost is technology, software, what we call software, cloud, and data center.
In that, we had some migration-related costs to third-party banks, so there were some one-offs there. Also, some of our contracts with our partners, with bank partners, work in a way where we bear some of the infra costs, but we do get a slightly higher share of UPI incentives. So, so that is something where the contract is just slightly different than the contracts that we had in the past. And finally, on other indirect expenses, we had some one-off provisions, largely related to our device merchants. We took this opportunity to look at our provisioning policy, and we have taken a very conservative provisioning policy on any trade receivables, particularly from device merchants. And any time you tighten provisions, you usually have a one-off expense, and then you have that sort of taper down.
I do expect the other indirect expenses to also come down very meaningfully starting next quarter. So that's where we are. So yes, you're right, that despite the decrease in employee expenses, our overall other indirect expenses went down, went up from INR 1,200 crore to INR 1,300 crore, but we expect that to come down. Overall, one-off numbers would have been to the tune of about INR 80-INR 100 crore in this quarter.
Perfect, Madhur. The other question that I had was on the lending side. What is your, you know, you did mention that we should see a gradual scale up. Just wanted to know if you can break that up between merchants and PL. What kind of, you know, grading up should one expect in due course?
I think, both of them have very different trajectories in some ways.
Yeah.
The merchant cash advance business, we've been running for four years, and it has been absolutely rock solid throughout. In fact, from what Vijay mentioned with respect to even further tightening and, you know, sort of credit policy discipline and so on, we are seeing some very good signs in terms of early buckets. So this business has always been a fantastic business for our partners and a fantastic business for us, and that continues. It's really just a question of, in this sort of credit environment, it'd be better, we just, you know, better safe than sorry sort of situation, where we just remain conservative.
On PL, as you know from the last quarter discussions, that we are focusing largely on distribution of personal loans, and their efforts are underway to add more and more partners, both banks and non-banks. As you have more partners, we should see more and more scale up. I think the key focus there is to build as much diversification. One of the focus is to build as much diversification. I mean, we shouldn't—both of these businesses should grow, like Vijay mentioned, but sort of for different reasons.
My last question, Vijay, is on the devices. Your commentary says you get back to adding a lot of devices that you used to in 2024, which was about INR 13-INR 14 lakhs a quarter. So is that the run rate that you're talking about once you get into the second half?
Well, I don't know whether it will be INR 13-INR 14 lakh per quarter or less or more, but I can tell you that what we are seeing is that as far as our understanding of the market is concerned, there were a lot of devices that had got inactive-
Yeah.
And we used to pick them. That is why we net them, and we are finding that we could pick those devices and deploy them back. That is why one of the big reason that our CapEx will be lower, but we will be able to get more money also. So, when you say INR 13-INR 14 lakh, I think healthy number would be more like INR 1 million a quarter instead of INR 13-INR 14 lakh. But, who knows? We could just, in a festive quarter, aggressively go there.
Got it. So, yeah, what I meant is you get back to, like, adding INR 8-INR 10 lakhs
Uh.
per quarter in due course.
Uh, uh, .
Perfect. This is good. Thank you.
Thank you.
Thank you so much. Next question is from Lokesh Marik of Vallum Capital. You may please go ahead.
Yeah, hi. Just a couple of questions. One is on the technology. So, you know, sometime back, I heard that, you know, our uptime is quite high compared to the competitors. And I understand one of the reasons is that we have a you know, tech stack, which is earlier sitting in Paytm Payments Bank. And now that the payment system is being powered by four different banks, do you see any, you know, difficulty in maintaining the uptime? First question.
A short answer, that we are adding our technology to the partner banks. We are powering our partner banks with our technology.
Understood. Understood. And the second question was on the divestment of the entertainment business. So should we expect a software and data tech?
Should we expect? Clarify again.
Yeah. Do you expect a fall in your software and cloud and data center costs?
Oh, my business... I hear what you're saying. So let me tell you, the biggest cost in software data center is actually order of magnitude bigger from payment processing or payment type. I mean, total number of transaction, as you can guess, the computing is in reference to the number of query that we'll send to the cloud. The total number of transactions for all of our these various marketing services will still be less than 5% of total cloud cost. So it won't be at all material, even if we look at one category of line item over other, because rather, largest cost goes in number of payment processing that we execute at the back end.
Understood. Understood. That's it from my side. Thank you so much.
Thank you.
Thank you. Next question is from Pranav Gundlapalle from Bernstein. Pranav, you may please go ahead.
Hey, thanks for the presentation. Just a couple of quick questions. The first is on your payments margin, just the processing margin. There's obviously a sharp decline versus, say, the December quarter. What are the biggest drivers apart from the loss of certain products? Are there any other factors driving this decline?
So, primarily, I think, I think we've given some details in the last quarter earnings as well, perhaps, so I just refer to that. But just to answer your question, most of this decline is due to the higher profitability that we had from, the products that were discontinued-
Mm-hmm.
particularly Wallet. So we had mentioned that we expect the UPI, non-UPI- to be again, 15-18 basis points, as it was a couple of years ago, actually. But from... So that was one component. The second is, again, in the, in our, deal with third-party banks, such as Yes Bank and, HDFC Bank and Axis Bank, and so on, our, commercials are slightly different in the sense that, we do bear a little bit more of, payments costs-
Mm-hmm.
But we get a slightly higher share of UPI incentives. So on an overall basis, we do about the same, but the running costs are a bit higher. And we have given some mixed numbers as well, that we expect this to be 3-3.5 bips a quarter, but excluding UPI incentive, and including UPI incentive, we expect that to be 5 basis points plus.
Understood. So, the 4Q UPI incentive would be much higher now, and therefore, the full year gap would be a lot lesser than the gap we are seeing in the individual quarters. Is that fair to say?
Yes. I think there is an offset there, but again, we were earlier at between 7-9 bips, and I think in last quarter earnings, we did say that we'll be closer between 5 and 6 bips going forward now.
Understood. Thank you. So that's all. Thank you.
Thank you.
Thank you, Pranav. Next question is from Rahul Jain of Dolat Capital. Rahul, you may please go ahead.
Yeah. I hope I'm on.
Yes, you're audible.
Yeah, you know, since I did not share any specific guidance for Q2, it will just be great to understand from specific color in case, how are we trending in recent months versus what's the quarterly average, maybe in terms of ARPU, devices, new monthly users, any other metrics you would like to share upon?
Rahul, as far as device revenue, per device, et cetera, are concerned, like we were told, you, you could see the revenue and, that, that's there very much in line. So what, what other line item, ARPU, we should be talking, considering that what we do not have, we have indexed it, if you notice, from January, the GMV or the transaction volume, net of what product that we cannot carry, namely the products that we cannot carry, I want to remind you, are wallet, rent payment, and in last, last month, credit card bill payment, BBPS and, direct connectivity was in India, reset it, that you cannot take that directly. So, quoting ARPU, obviously, beyond these products, ARPUs are in the same range.
In fact, rather, what we are seeing and what we're able to do is that we are able to increase ARPU per customer, whether it is consumer or merchant side. We are able to do better cross-sell. So internal company has been aligned in a cross-sell method mode, where that there should be an attention to cross-sell in a more attentive ways. So expect ARPU of net of those products stable, and then adding the various line items and increase in ARPU the next few quarters.
Right. Yes, sorry. Shall I continue?
Yeah, yeah, please.
Yeah. So, the second question was, to understand, you know, what are the thought process, behind, there was this, belief that trying to develop, some part of the market related to, events, and, how we see, doing better focus and, and eventually from a time perspective, given that some product has been, contained at this point. What are the broader thought? Is it more about very sharp on fewer things at this point, and, those expansion can be a much later point?
Rahul, one thing that I personally take care, and I'm putting every line item of business under review, is that if it takes attention and resources, and if it does not contribute towards the bottom line in a growing bottom-line manner, then why are we doing it? That's a simple approach.
So I think I'll just add to that. We want to focus very sharply on places where there are ecosystem benefits to us. Payments clearly being the core business of ours, and then there's financial services. And even if you look at what we call marketing services, those are areas where we basically have payments merchants who we can do more and more business with. So that is one filter that we use. The second filter that we use, like Vijay said, is: so what is the contribution to our overall business? And the third is, what are the avenues available for us for maximizing shareholder value? So basis all of these, you know, certain businesses are evaluated from time to time, and this is an evaluation that we are doing right now.
Right. And,
Rahul, your network is not perfect. We are able to-
It is tough to understand the question, so maybe a little louder or clearer or something has to be done.
Yeah. Is it any better?
Yes, definitely.
Yeah, yeah. So, just last bit, in terms of understanding the right growth matrix for us now, the challenges are behind. Now we have the canvas and run rate that we at a stable point, and year on, we would go to evolve over time. So is there a way you want to characterize that, this is given the current shape of the business and product that we have, what is the revenue band that you should chase for, from [INR 250?]
Rahul, if I understood, and I'm answering so that if there is something doesn't get answered, please do revert back. Overall, we have shown the stability, and like we are talking, our merchant base growth is expected because we are already onboarding merchants, while on consumer side, we are awaiting onboarding. So one is that is a TAM, total addressable market of cross-sell to be enhanced on a platform which is the number of user or merchants, which is the total addressable customer base on the platform. Number one growth metrics is this.
And number two, because we have had, and we are lucky to have such a resilient customer base or trusted customer base on our platform, which is more than enough for monetization, to be honest about it, we believe that we need to cross-sell various financial services and help merchant get various marketing services better, and that is the key KPI that we need to look at. So more customers and more cross-sell per customer, as simple as that. And among the cross-sell, obviously, one of them that we've done over the past, and we still continue to do, is credit, while insurance and wealth are pending at a scale. And in marketing services, we've shown what we can enable to the merchants, and we have a few more line item that we are expanding and have seen those line item ongoing with merchants.
So more merchants and consumers, basically more customers on our platform and more cross-sell per customer.
Thank you. That's quite something.
Thank you so much.
Thank you, Rahul. Next question is from Bhavik Dave of Nippon India Mutual Fund. Bhavik, you may please ask the question.
Yeah, hi. Thank you for the opportunity. Sir, two questions. One is when we look at our employee expense decline that we've seen quarter-on-quarter basis, it roughly looks like 50% of the fall has come from your 5,000-odd fleet on street that have gone off, and the remaining is from your other employees. Just wanted to understand, when you talk about INR 8-INR 10 Lakh odd merchants that we'll add, like maybe from the festive quarter onwards, when things normalize, will we require—will we be okay with the 31,000-odd people that we have fleet on street, or we'll have to maybe pull that up back? How do you think about it? Because that's mainly contributed to your employee expense going down.
So just wanted to get your sense on that.
Bhavik, we had a FASTag sales team, and, we have optimized on that side. While our merchant sales team continues to be augmented, you will see increase.
Okay. So this number will be around this 31000-35000 odd people.
Expect continuous growth, and at festive season, all being good, we will be bigger in this count.
Okay. And sir, second question is on the other indirect expenses, which Madhur sir alluded to, and there's a INR 75-INR 80 crore kind of increase. I didn't get the entirety of the answer. In the sense, what exactly is this INR 75-INR 80 crore? And that seems to be the one-off for the quarter, right? Like in terms of increase in indirect expenses. If you could just throw a little more light on that.
The question was overall in indirect expenses-
Right.
not just on other indirect expenses.
Right.
So what I was saying is that if you just had to look at one-offs-
Mm-hmm.
Then there are some infra expenses that we have incurred as a part of the transition.
Right.
The second is that we have tightened our provisioning for aged receivables-
Okay.
specifically for device merchants.
Okay. Okay. All right.
And the one-off nature of the second point is that anytime you tighten the provisions, there is a one-off number, and then obviously there is an ongoing number.
Understood. Understood. That's useful, yeah. Thank you so much. Thank you.
Of course. Thank you.
Thank you, Bhavik. Next question is from Jayant Kharote of Jefferies. Jayant, you may please go ahead.
Hello. Yeah, hi. Thank you, and congrats on a good set of numbers. I have three questions. Firstly, I wanted to start with, now that, you know, operations have stabilized, your lending pipelines are laid out, and as you said, you are going to grow in tandem with how the market landscape moves. So now, where do you see the new growth avenues or profitability avenues from a near term, let's say, three, four, five quarters outlook? Which are the products or segments which, frankly, is making you most excited? That's the first question.
Jayant, there is no doubt about it, that, in India, commerce is not a bottom-line centric line item, and we've seen that, any kind of commerce, is not going to be significantly bottom-line accretive. So the other line items are advertising and, you can talk about financial services, so credit, insurance, and wealth, and this sequencing as a dollar value, total value basis, is what my personal pick would be, and advertising is a by-product of traffic.... and all these are bottom line included.
Great! That, that really helps, credit insurance and wealth. So just on, on building on that, firstly, credit, do you see credit card on UPI? What is the stumbling block? Why haven't we seen that volume? It did have an initial pickup last year, but where is that momentum not heading? I mean, what do you ascribe that to?
Second, UPI requires RuPay credit card. RuPay credit card requires new credit card to be issued. New credit card issuance requires market to improve. Market improvement requires rates to improve, so you can see the domino where it is headed. And effectively, as soon as you see more and more RuPay credit cards in the market, so that's why banks are now replacing, if you will, or issuing the same limit on RuPay credit card instead of calling them incremental because of, you know, you in parallel world, which we seeking, credit card portfolios. So that increases what is now secular, organic, not catapulting to a very extraordinary number, is the reason that growth doesn't look so much. But at the same point in time, overall credit card on UPI is a great product, very visible, and it is only for RuPay credit cards.
That is why it is where it is.
Bhavesh had given this number. Two years out, he was looking at a 5% of GMV sort of, coming from this product. Do you think we are still on track to do something like that in the next, one or two years?
I think I'd add credit card on UPI, plus credit on UPI into this, because maybe the credit on UPI is what NPCI is very actively working upon, so that would bring... Effectively, the app or acquiring side roles remain anything that bears MDRs, and MDR on both are very similar. So in other words, I would still be saying the same, and I would just add credit card or credit on UPI, because maybe people don't issue or the banks don't issue credit card as much they can issue the overdraft limits.
Great. And one last question on the insurance side. Some of our peers have scaled up this two-wheeler motor, consumer products of insurance very successfully now. Why are we focusing on the merchant side and not doing both ends, consumer and merchant? What is the thought process over there?
Merchant is more in-person sales that we are able to execute, that doesn't require social media or other marketing channel to be required. So there is actually a merchant side number that is bigger than... On a revenue line item, merchant number is bigger than consumer, actually.
And in the near term, there's no thought process of doing consumer side from your end?
No, no, we'll do it. I mean, health is something that we are trying and we are seeing good product build-up. So we will, and we are. Like I told you, in sequencing, credit, insurance, and wealth, the, as a dollar value increase, while wealth is maturer product for us, so we would do more, wealth. And, insurance-wise, like I said it, we are now building towards more consumer side and bringing that as an attention point.
Great. Thank you very much, and congrats once again for a great set up.
Thank you so much, Jayant. Thank you.
Thank you, Jayant. Next question is from Grishma Shah of Envision Capital. Grishma, you may please ask your question.
Yeah, excuse, good evening to the management team, and thanks for the opportunity. Just wanted to know your thoughts, partly you addressed it, but you know, if you look at the payment to consumer line item, INR 84 crore of revenue this quarter, roughly. We don't have wallets, we don't have FASTag. Postpaid loans may or may come back in the future. So, while we understand that you want to cross-sell, you're waiting for approvals to bring in more consumers here, very tough to estimate, when will the wallet piece come back? So if you could give some idea on that.
Ma'am, first of all, you very well have zoomed in, and these are the factors. I would rather add and correct few more factors. So consumer payments, number one, wallet. Number two, rent payment.
Okay.
Number three, like you said, postpaid loans, which were interchange revenue, right?
Yeah.
These three are the bigger consumer side of the products.
Mm.
When can the wallet come back? We're very hopeful that it should someday, in partnership or otherwise, come back. At the same point in time, right now, we rather are focused on products before that, like stabilizing relationship with banks on UPI technology, like in earlier question I answered, and at the same point in time, stabilizing and bringing back the merchant back. So are we working on the wallet to be brought back, or are we working on other systems to be working, scaling? We are right now working on other systems, working and scaling. And will this come back? We hope and wish that it should come back, but we don't have a direction towards it.
Okay. And the approval from the NPCI should come during this fiscal?
On consumer adding?
Yes, sir.
Ma'am, we definitely believe that it should definitely, at a fiscal scale, definitely.
Okay.
Unless something extraordinary is awkward.
Okay. Thank you and good luck.
Thank you.
Thank you. Thank you, Grishma. Next question is from Aashi Anand. Aashi, you may go ahead with your question.
Yes, hi, I actually had a question, even extension of Grishma. If we look at the consumer payments GMV, ex the discontinued products, this is down about 20%, from an index perspective. However, consumer payments revenues are down 80%. Just want to understand, can all of this be ascribed to higher profitability on the two or three products that have been discontinued, or are there any other factors at play?
You very well said it already, that the products that were discontinued were very highly profitable.
Okay, excellent. Thanks a lot.
Thank you.
Thank you. We have repeat questions from Vijit Jain. Vijit, you may please, go ahead.
Yeah, thanks. So just two questions. one, I just wanted to, you know, get a sense of, you know, you've obviously telegraphed that you look to cut INR 400 crore-INR 500 crore in annualized employee expenses, and you have pretty much done that in this quarter, if I look at December versus June quarter. So is it fair to say that most of the actions that you needed to do on the team side are now behind, and you would look to grow team in line with how the product evolves from here?
Vijit, I would add one extra line item here, that the total impact that can be visible in finances is actually, as you can understand, there are notice period, et cetera, et cetera, so that is yet to come a little bit more.
Okay, great. Got it. Thanks, Vijay. And Vijay, my last question, you know, with the devices thing, you and Madhur mentioned about the aged receivables impact, because of some devices which went inactive and then you redeployed them. So I'm just trying to understand, during this whole last six months, you would have had some merchants drop off from devices. Were you able to recover most of these devices from merchants who dropped off and redeploy them? Or, you know, were there some devices that you would also have had to write off?
Vijit, normally, what we do is we have reactivation efforts, right? So obviously, when a merchant becomes inactive, your first few months of efforts is to reactivate them-
Mm-hmm.
as opposed to pick up the devices.
Mm-hmm.
If only a merchant is inactive for longer-
Mm-hmm.
that we would look to pick up the device and refurb it and redeploy it.
Mm-hmm.
And even that is, you know, worth doing, but obviously from an ROI standpoint, it's much better to try to reactivate the merchant. Also, because the merchants that went inactive was due to an external factor. It's not like the merchant's behavior changed or something. It's just that maybe they saw some press news or they... whatever else-
Mm-hmm.
got confused and thought their device would stop working, and that's the reason they went inactive. So our effort should be actually even more on reactivation in this case, because the merchant may not have sort of just voluntarily one day chosen not to use the device. So we will move towards a period of reactivation efforts, and only after that, think about picking up these devices, unless the merchant has expressed a specific desire to not continue.
Right.
On the other hand, from a financial standpoint, we want to be conservative, right?
Mm.
Which is why we have taken—we have increased the provisioning, because in a situation where if I'm not able to... If I have some money due from a merchant, and the merchant has stayed inactive, then I want to get that off the books, yeah.
Got it. Thanks, Madhur.
Of course.
Thank you. Next question is from Nimesh Shah of Emkay. You may please go ahead.
Yeah, thanks for the opportunity. So I had one question on the devices front. If you could just call out what would be the subscription revenue per month, per device, for us this quarter?
On a device basis, we get about INR 80-INR 90 per month per device.
Got it. And, what would be the CapEx guidance, if you have any, for this year?
We are actually working through that for this year. The reason is tied back to the question that Vijit had asked-
Right.
that if you have inactive devices, at some point, you would be picking up a percentage of those and refurbing them and redeploying them. But it's safe to say that our CAPEX this year will be lower than our CapEx next year, quite meaningfully.
Or last year?
Sorry, sorry. Our CapEx this year will be lower than our CapEx last year, meaningfully lower than our CapEx last year.
Got it.
And just-
Yeah, sorry.
No, sorry. That's all I was saying.
Yeah, okay. Thank you.
Thank you. Next question is from Manish Shukla of Axis Capital. Manish, you may please go ahead.
Yeah, good evening, and thank you for the opportunity. On personal loan, just curious, why is the ticket size flat YOY, if we had stopped doing the small ticket personal loans for the last 6, 9 months?
Why is the ticket size?
Flat on a YOY basis. The personal loan average ticket size disbursement-
... I would have expected that would have trended higher, given that you've stopped doing small ticket personal loans for more than six months.
Actually, the percentage of small ticket personal loan was very small. I think from what I remember in December, early December, when we had spoken about this, I think by volume, sorry, by value, I want to say it was high single digits or low double digits. 10 or 12% is my recollection. Or so, sorry, but I think maybe by volume it was 10%-12%. By value, I think it was closer to 5%. So it wouldn't really change the number very much, Manish, and the rest of it could be variance of the remaining 95%.
Okay. One of the notes from loan says that the FX OCI is all PayPay. So what is the carrying value of PayPay investments as of end June?
I should—I can get that to you separately. I don't have that offhand. But yes, all of that is related to PayPay. And just to clarify, it is related to forex movements. So this quarter, we have not had any change to the underlying value. It is basically forex movements between yen and rupee, and I think yen has depreciated slightly against the rupee.
Yeah, but we don't have the balance sheet, so we don't know the number for 31st March as well, right? So.
I'll get you the number for 31st March.
Okay.
I'll put that out there.
Sure. Thanks. And last question on personal loan disbursement. I joined the call late, and so my apologies if this has been answered. The monthly run rate in March and April was INR 1,000 crore plus. But this quarter, on a full quarter basis, we've done about INR 2,500 crores. So what are the numbers that we are looking at going forward?
Personal loan is going through two of the buckets, as we discussed last time, that we are only going through disbursement of large ticket loans, which is only like we just learned, 95% of them were earlier the large tickets only. But the intention is to define these loans as disbursement only, where our role responsibility is not led by collection. So now, these loans are susceptible or obligatorily linked to the wider credit situation or context of the market. So till the time period, market or regulatory guidances to the small credit or these are under—these still are counted as small credit, even though not less than INR 50,000 this is not going to grow very dramatically.
Sure. Understood. Thank you. Those are all.
Thank you, Manish.
So, Manish, I just wanted to add to your previous question. In October and November of last year, October, November 2023, we had disclosed previously that personal loan, less than INR 50,000 was 3%-5% of disbursals, so it was already a fairly small percentage. We had been reducing lower ticket through 2023 as well. So at the beginning of 2023, that number was closer to 7%-9%. So most of the change that you have seen was already more than a year ago.
Okay, understood.
The carrying value for PayPay is roughly for our stock acquisition right in PayPay, is roughly INR 2,000 crore.
Sorry, INR 2000 crore?
INR 2,000 crore, yes.
Okay, thank you.
Thank you. Next question is from Sumeet Kariwala of Morgan Stanley. Sumeet, you may please go ahead.
Yeah. Hi, good evening, everyone. Thanks for the opportunity, and great to see the business stabilized now. As we do that, you know, I had a question from a medium-term perspective. If you can highlight what would be the sustainable growth rate from a two-year perspective? Where the contribution margins and EBITDA margins kind of stabilize from a two-year perspective. Nothing for fiscal 2025, 2026, but if we take a two-year outlook, how should we think about the business now, post all the changes?
Well, Sumeet, first of all, thank you so much. We believe that it should be growing very comfortably now that the base would become smaller. If you notice that we were able to do very healthy, 35%+ growth, any which way is on a larger base. So you, you can build it, or we can at least expect bettering that number.
So, Sumeet, I'll just, I'll just add. I think, I think if you think about the payments business, the GMV growth is very strong, and especially on merchant side, our position is very strong. And before these events, we were actually growing market share quite meaningfully. So while we have had some reduction in market share from early February to May, there's no reason why we should not be on an increasing market share trajectory as well. So I feel pretty good about, obviously, the overall payment volumes in India, you know, they're growing 30%, 40%, 45% comfortably, and then our merchant side share increasing as well. So that's, that's on the payment side. On loan distribution, obviously one has to be very, very, very cautious through the cycles as we have been.
But, even if you had to sort of put aside any recovery-related tailwinds, again, growing loan distribution business, given how low our penetration is by, you know, 30%-40%, is the sort of thing that we should be aiming for. I think, Vijay, in the document we have talked about, in our key focus areas, also insurance and wealth, which are not massive contributors to our business right now. I think together they are probably about 3%-4% of revenue, of our overall revenue.
But the reason why we're talking about those is there are reasons where we are allocating resources, not from an FY 2025 perspective, but really from, you know, sort of future growth drivers perspective. So we think that they can add percentages to our top line. In terms of margins, obviously, we are currently now on path of path back to recovery to profitability, and which I talked about at the beginning of the call. Medium term, we do want to get to sort of high double digits or close to 20% EBITDA margin. But... And I think the overall platform can do much better than that. But over the next three or four years, that's what we should be aiming for.
Yeah. And just one small follow-up. Broadly, this 15%-20% range should be a fiscal 2027 kind of event. I know there's, I'm asking a tough one, but-
Yeah.
Just trying to think whether it's fiscal 2027, 2028, 2029, or in a sense, because things are stabilizing now, fiscal 2026 and fiscal 2027, if they are good, fiscal 2027 could be that kind of a year, or it's further out?
Yes. Yeah, fiscal 2027 and fiscal 2028, those are the ranges we should be in, and I think longer term, we can be higher.
Perfect. Thanks a lot for this. Thank you.
Thank you, Sumeet. Next question is from Aman Vij. Aman, you may please go ahead.
Yes. Good evening, sir. My first question is, so basically on the merchants, the penetration of the devices. So this number used to be around 10%, which has now moved to around 25%. So could you talk about how much higher can this number grow to?
I'm sorry. Overall merchant base penetration was 10%.
Yes.
Is that what you're saying?
Yeah, it was 10% two years back. Now it is around 25%, right? INR 20 crore out of INR 4 crore, we have INR 1 crore devices, INR 4 crore merchants.
Oh, got it. Got it. So, obviously, right now, there is no doubt about it that we were redeploying or capturing the current merchant base, visiting them, and then when you revisit, then you find out that they are a Soundbox customer. So you're looking at it. At the same point of time, there are both numbers increasing, the overall TAM of number of merchants which are paper QR, and then number of merchants that are Soundbox. And I think that now there is a new trend in India, that the new shop is happy to take a Soundbox day one. So in other words, we would be able to get subscription-paying merchant on the day one instead of earlier, where they used to have a QR code-based transaction volume and then graduate to Soundbox.
So, sir-
This percentage is not the final mathematics, basically, Aman, I'm trying to say. We basically, we could be deploying hundreds of thousands of merchants, which are first-timer on Paytm platform with directly device.
So, the question is a little long term, say one to two years down the line. Do you think this number, which is 25% now, can it move to even 30%-40%? Because like you are saying-
It rather should be, it rather should be 100%.
Yeah, the incremental will be 100%, but overall, out of-
Yeah. I mean, overall, like I said it, that any which ways, the number of merchants that take payment using Soundbox become higher, transacting merchant and so on. So we prefer to onboard merchants or transfer merchant to Soundbox. So I mean, this penetration percentage, we don't look at it like that. And like I told you, why? Because we rather believe this merchant who is paying a subscription is a better merchant.
Makes sense, sir. Next question is on the Soundbox, part only. So could you talk about, in terms of whatever is your estimate, what is our estimate in this product? Because we were the first in this product, but now, competitor is also catching up. So according to your estimate, what is our current market share in this Soundbox product?
I don't know. There is no number from market. I, I mean, there is nobody who captures total Soundbox deployment.
Sure. For our mix, in terms of the POS machines and Soundbox, is it still more towards Soundbox, or has the shift moved towards the POS machines?
As you said, we are pioneers of Soundbox. We will expand on Soundbox and add card to that instead of making EDC pick up a Soundbox. You know what I'm saying?
Makes sense, sir. So just one, two clarification. So the number which you mentioned, INR 7.8 crores monthly transaction user, does it include the merchants as well as the users?
No. We basically, I mean, total customer on the platform should be A plus B and minus of the dedupe.
Sorry, I didn't get it.
Merchant plus consumer plus certain people who are both.
Okay.
That, removing those, that's what.
Okay.
The number does not include like that.
Okay, so no double counting, but it includes the number of merchants we have as a transacting user.
No, it does not include those people as in this number. I'm rather saying the total number of platform user will be consumer plus merchant, minus certain consumer who are both merchant and consumer. The 80 is only one side of the number, not the both side numbers.
Okay, sir.
Aman, Aman, the point I'm trying to put up is that we are not taking active merchant into our active consumer count. We call it consumer, not customer, while customer on the platform is consumer plus merchant.
Okay, that, that makes sense. Final question I had, you had talked about we have focused more on merchant loan, basically. So in terms of the, the, so there's two parts, payments and, the loan distribution side. Again, the question is on the market share. In your understanding, what, what would be our market share in this merchant loan payment systems?
Sorry, can you please repeat it?
Again, Aman, we do not know of who else do it or how much they do it, and banks directly do it, and other NBFCs do it, so we can't say a market share of merchant loan to merchant. You know what I'm trying to say? There's no unit on... Again, there's no denominators which we know of to the numerator of our numbers.
So, so just to be clear on this, we want to stick to sort of published information, and some of the questions that you are asking, we don't really have published information on. And, you know, like you said, we're pioneers of this product, and we have high conviction on this product, so we just continue to expand the market. And there have been interesting learnings along the way, like Vijay was saying, that earlier merchants were upgrading from QR to Soundbox. Now the merchants want Soundbox as their, perhaps, their first payment product, and so on. So that's the bottom up opportunity that we see and feedback that we execute on. We don't really have... There might be research out there, but we don't really have market share information to share.
Sure, sir. Yeah, these were the questions. Thank you.
Thank you. We will take only two questions, I mean, two participants after this. We'll start with Deepak Mehndiratta. Deepak, you may please ask your question.
Hi. Thank you for the opportunity. One very, very small doubt. I'm not sure if it has been covered. How do you see the sustainable take rate on the financial instrument, on the financial lending side? And apologies if it was covered earlier.
I think we mentioned in the last earnings release that it's 3%-3.5%, and that's about it. You're talking about just to clarify, you're talking about take rates on loans, right?
All right. Thank you, thank you. Bye.
Thank you. . Next question is from Nitin Aggarwal of Motilal Oswal. Nitin, you may please ask your question.
Yeah, hi. Good evening, everyone, and thanks for the opportunity. I have two questions. One is like, first, if you can talk about how has been the success rate in reactivation of dormant UPI customers? Because we have lost a fair bit of customers over these months. And so do you really see any room to increase MTUs until we are allowed to onboard new customers?
Rather, there is a little bit of month-on-month increase, but not material enough. There is, yes, Nitin, short answer, there is. And by the way, the total TAM of people whom we could bring back is about 183 million.
Okay. How has been the success rate and like, so far, in your, like, engagement with the customers of this 183 million therefore, what is your sense?
I mean, overall, if you remember last time, I was saying that we were interested in materially valuable customers. So materially valuable customers are those who can monetize and so on and so forth. And we are also augmenting our product. As you are aware, right now, the product back end is something that we are working with banks, so we have not gone aggressive, basically. Short answer is that.
Right.
Because multi-bank, partnership, workflows, you know, lots of things.
Okay. Sure. And, this, take rate, and guidance that you have suggested, 3%-3.5%. So, but at the same time, you're also looking to expand into the secured lending products. So any, any, like, specific plans as to which all products you will want to initiate with the lenders, and, what size you are looking at when you look at this take rate guidance over the coming years?
I think take rate guidance on loan is, as you very well understand, that it is dependent on the product mix.
Yeah.
It is not like a disbursement mix. And if our disbursement of secure credit, namely LAP, loan against property or loan against gold or loan against securities, all those kind of things happen, then the numbers will be different. So have we seen those numbers yet coming in? So these are in the, in integration process, and we'll see as this comes. And like you said it very well, the take rate is a outcome of the kind of mix of product that we're talking. And right now, the mix stays the same, so that is why we are talking the same take rate. But like you said it, if we end up growing secure credit dramatically bigger in ratio, it will show up, those kind of numbers.
Are we already doing any pilots here on the secured lending?
Ji, yes.
Okay. And,
Just go ahead. Go ahead, please.
Yeah, sorry. And the last thing is like, how do you really look at the broking distribution and the other financial income? Like, how big can that be as a lever or what?
Mutual fund distribution can be really, really big because this is equivalent of building a book, because we have done. There were two kind of business models in mutual fund distribution, as you are aware, which is direct or where the platform charges the fee or earns income. So we have started to expand on the fees income kind of model, and the numbers are growing very, very well. So I do believe that mutual fund distribution and insurance distribution over the period will become the third leg, like payment, credit, and mutual fund distribution, or plus insurance distribution.
Okay.
Insurance distribution, we've been able to find both side takers, consumer and merchant.
Right. Right. Sure. Thanks, thanks Vijay, so much. Thank you.
Thank you. Thank you, Nitin.
Thank you. That was the last question. Earnings call and the transcript will be made available on the company website subsequent, subsequently. Thank you all for joining.
Thank you, everyone. Thank you so much for joining.
Thank you.
Bye-bye. Have a good day.