Thank you for joining, and a warm welcome to Paytm's earnings call to discuss its financial results for the quarter and fiscal year ended March 31, 2022. From Paytm's management team, we are today joined by Mr. Vijay Shekhar Sharma, founder and CEO, Mr. Madhur Deora, president and group CFO, Mr. Bhavesh Gupta, CEO Lending and Head of Offline Payments, and Mr. Anuj Mittal, Vice President Investor Relations. Before we begin, a few announcements for all attendees. This earnings call is meant for the existing shareholders of Paytm, for potential investors and research analysts to discuss the company's financial results. This call is not for media personnel. If any media representatives are attending this call, we request you to kindly drop off the call at this point.
The information to be presented and discussed on this earnings call should not be recorded, reproduced, copied or distributed in any manner whatsoever by any of the attendees. Statements or comments made on this earnings call may include forward-looking statements. Actual events or results may differ materially from those anticipated in such forward-looking statements. Finally, this earnings call is scheduled for 75 minutes. It will have a presentation by the management, followed by Q&A. Kindly utilize the Raise Hand feature on your Zoom dashboard if you seek to ask a question. We will unmute your line and take questions in the respective sequence of raised hands within the scheduled time. Please ensure your name is visible as first name, last name, followed by your company name in brackets for us to be able to identify you.
The presentation and 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 this earnings call.
Thank you. Thank you everyone for joining. It's an incredible moment for all of us that we have such a great quarter. I think India is clearly demonstrating trend towards moving mobile payment from tier one, tier two revolution. It's reaching tier two, tier three. We are seeing more number of consumers, more number of merchants in smaller tier two, tier three towns taking mobile payment as primary way of accepting money. I believe that UPI, which is India's one of the most important technology platforms, is going to grow even further in next few years. I believe that Paytm has a advantage of taking leverage of UPI in driving more number of customers and more number of merchants on its platform.
The good thing is that more number of customers are coming on Paytm and more number of merchants are coming on Paytm, and we are able to drive a monetization strategy on payment also. Important to note that we started to experiment with levying, adding some customer surcharges on some products, and we have seen tremendous uptake of that great monetization on consumer side by adding platform charges. We've seen on the merchant side that merchants have started to accept payment seriously, and small merchants are ready to invest and are investing in our cloud and device-led strategy of paying for monthly subscriptions. Basically, UPI finally have started to get monetized for us as company in terms of how we expected and how we see it being scaled further in next few quarters. You will see that consumer payment side of revenue will grow.
You will see that merchant side device-led strategy where merchants are paying for cloud and device subscription and rental is growing and is showing in this quarter's numbers also. It's important to note that in payment, which is our primary bet, we believe that we will be able to earn all its costs and achieve EBITDA contribution standalone for payment also. Our bet is payments. Our bet is leveraging payments, disbursement and distribution of credit. I'm sure you must have noticed our phenomenal quarter numbers. I believe that payment is giving way to those customers and small businesses and merchants who did not have access, but deserved credit. Meaning people who could have had higher CIBIL score or could have got a better credit pricing from a formal financial institution.
These are the kind of people who are getting access to large financial institutions who are our lenders, and our lenders are getting multi lenders are getting access to these new customer bases. I believe that credit, which is very, very in infancy, has started showing that it is a long-term sustainable and going to become pretty large business for us. Our bet is payment. Our bet is distributing credit, leveraging payments, data and access that we have. I believe that our team, which is motivated by the opportunity, which is completely inspired to see the inclusion and access to the formal financial services to the people who deserve, has done incredibly good in last quarter.
This is just a beginning. You can see it from the results, and you will see it that in subsequent quarters and years, we will amplify our monetization, contribution, and profitability. Like I publicly disclosed in a letter, we remain committed, and I'm even more convinced that we will be delivering operating profitability that is EBITDA before ESOP costs by September next year quarter. It is truly a privilege to explain our business and share our numbers. I would give it to Madhur for giving you a detailed presentation, and we look forward to have an engaging conversation post that. Thank you.
Thank you, Vijay. I wanted to extend my welcome to everyone. Thank you for joining us, and thank you for following our performance closely. Q4 FY 2022 presentation. Once again, we want to reiterate, our mission is to bring half a billion Indians to the mainstream economy through technology-led financial services. Strong growth in revenue and profitability this quarter. Our revenue from operations for this quarter was INR 1,541 crores, slightly more than $200 million. This was 89% year-on-year revenue growth, similar to last quarter. Our contribution profit was INR 539 crores, 35% of revenue, just above $70 million. This contribution margin, like in previous quarters, has been growing very fast.
It's a huge step change from what we did last year and is up 210%, year-on-year. Our EBITDA before ESOP costs came out at INR 368 crore, about $49 million, 24% of revenue. This was an improvement of INR 52 crore, compared to the year before, and about INR 23 crore compared to the quarter before. In the year ending March 2022, for the full year, we did 77% growth in revenue. We did about 300% growth in contribution margin, and we improved our EBITDA by INR 137 crore. We have seen consistent growth in payment scheme operating metrics. Our average monthly transacting users is growing 40% year-on-year. We will also disclose the April numbers separately and currently stand at about 71 million.
This is roughly equally driven by the growth in new user acquisition, as well as consistently high retention of transacting users, so an improvement in our cohorts. Our GMV has grown over 100% year-on-year, and now it's sitting at INR 2.6 lakh crores. GMV from MDR bearing instruments grew 52% year-on-year. We're seeing overall platform growth, and within the platform, we're also seeing growth of MDR bearing instruments. Sorry, MDR bearing instruments. Our device deployed, which is the strategy that Vijay was talking about earlier, that merchants are, we believe, getting very well served by our devices. That is up to now 2.9 million devices, and we are adding roughly 800-900 thousand devices a quarter now.
Our device merchants, this is very important for us. It is strategically important. Our device merchants account for more than 75% of merchant lending disbursements in the last quarter. This is our payment services. Our payment services revenue grew 80% year-on-year. This was driven by two major factors, growth in MDR bearing instrument GMV, as well as payment devices growth. As you know, we break up our payment services revenue in two parts. Payment services to consumers, which grew 69% to INR 469 crore. Two major factors is the growth in usage of Paytm app. Like I mentioned earlier, the MTU has grown 40% year-on-year, as well as growth of bill payments use cases. We are seeing rapid scale-up of adoption of bill payments use cases.
Payment services to merchants is up 90% year-on-year to INR 572 crore. Again, growth in MDR bearing instruments both in the online space and the offline space. We are seeing the growth in payment devices, like I mentioned earlier. There is a little bit of seasonality impact in the Q1 Q2 trend, purely because in the last quarter we had a positive impact of festive season. 80% payment revenue growth year-on-year. Our financial services revenue was driven by healthy growth in loans disbursement. Our financial services revenue grew 340% year-on-year and is now doing INR 168 crore or $22 million. Financial services includes loans, equity trading and insurance. The major part of this is from lending, as all of you know.
I'll turn over to Bhavesh to maybe walk us through the next few slides.
Yeah. Thank you, Madhur. Good afternoon, everybody. Madhur, if you could move to the next slide, please. Yeah, thank you. Our total value of loans disbursed, as you could see, last quarter was about INR 3,100 crores+. We do believe that this trajectory that we've seen is coming on the back of March 2021 when we were a bit nascent in our business. Definitely the growth looks very robust at 400%. Quarter-on-quarter also, as you can see, we're growing almost at about 50%, and we continue to see the strength very healthy across the simple products.
Our number of loans is something that we are indexed ourselves on because our entire focus of the management team, of the credit business is to see that we're getting more and more merchants and consumers in the mainstream ecosystem of getting credit. So 1.4 million loans in March 2021 has grown to 6.5 million loans. You must have seen our April announcements in which we see this trajectory moving forward at about 2.6 million loans for the month. Purely from a trend and basis also, this is continuing to be a business that we're seeing very good momentum and still at a very, very small penetration overall in the underserved community. Just going into a bit of detail, Paytm Postpaid, which is our BNPL, has had two important shifts over the last quarter.
In quarter three, we had called out that we were at close to about 3.5 million merchants who are accepting Paytm Postpaid. I'm glad to inform that now the acceptance of Paytm Postpaid has moved to more than 9 million merchants. This makes the acceptance of our consumption credit instrument in the country the highest ever, because the credit card acceptance is still fairly low, and hence Paytm Postpaid acceptance across 9 million plus and growing makes it a very significant move in making Paytm Postpaid a market product for Paytm. Overall, on the disbursement side, we saw 400%+ growth. INR 2,183 crores was what we ended up disbursing. This trend again continues. As you can see quarter-on-quarter, we are seeing a very healthy growth, almost at a rate of 100%.
We again see that as we move into April and beyond, we're seeing this growth continue. Large part of 6.5 million loans that Madhur just spoke about earlier have come through Paytm Postpaid. 6.4 million loans are in the funnel of Paytm Postpaid. We're also seeing now the ticket sizes start to grow because the book is mature with our partners, and we do find that on month-on-month basis the ticket size is starting to marginally go up. We do believe this trend will continue. Next quarter, hopefully we'll see a much better ticket size as the book is maturing.
The good piece here is that our personal business with last year same time was just in our infancy, and the Q1 of launch has shown a massive growth from a very small base of INR 68 crores, now touching almost INR 800 crores. In the month of April, it has further grown very, very nicely in capacity. The important part of the Paytm personal business here is, it is pegged on the Paytm Postpaid customers, and I'm happy to inform that almost 50% plus of our PL business is coming from the existing Paytm Postpaid customers who are actually upgrading themselves and taking a personal loan. Personal loan continues to be a product in which we have a very decent ticket size, almost touching INR 100,000.
We also have a very good take rate because this is a product in which we are not only making the service revenue and distribution revenue, but also we have a decent portfolio upside. The third business for us is merchant loans. Merchant loans have been a bit wobbly, thanks to COVID, wherein we've had some stop-start arrangement in merchant loans. We've had the quarter four as the only quarter, I would say, wherein some part of January, in which we again had a small scare of COVID wave three. But if you look at the quarter four, this is a sign of how this merchant loan business will perform for us. I'm again happy to inform that we're seeing almost 200% growth in the merchant loan business. This is a mature business. We've been doing this business for more than two years.
The book has been revolved by almost two times. This INR 564.5 crore is largely coming to us from our devices merchants. 78% of our business that we're originating is from our devices merchants. As devices business is gaining momentum and strength, we do believe that this particular trajectory of growth will only become better. If April numbers are to go by, this is a business which hopefully in quarter one of next fiscal should start looking even better than what we've seen in quarter four. Another important aspect of this business has been that we're already seeing a great adoption of the product with our merchants.
More than 50% of our value of loans that we're disbursing is coming as a second loan, that the merchant is taking on our platform. It does two things for us. It demonstrates stickiness of the merchant on the Paytm payment platform. We do continue to get subscription revenue because these merchants are devices merchants. B, the merchant appreciates the product and is coming back to us and making sure that we're getting the second loan and maybe hopefully the third loan with business. Quick sense on the portfolio. I do understand that we all understand this part, that Paytm does not take any kind of credit risk. Our model is very simple, that we are distributors and marketers of loans.
We do servicing of loans, and we also have a collections outsourcing agreement with our lending partners for most of our businesses, through which we have an upside that we get if the portfolio was to perform better than what the lenders are expecting. Q3 , we declared this metric. I'm happy to inform that quarter four metric continues to be as robust. We're not seeing any deterioration of any kind of metric that lenders are actually looking at this portfolio for. These are indicative metrics because we manage collections, so we understand the bouncing that is happening. We also understand the bucket resolution that are happening. The expected credit loss, the number that we're quoting here, is a number that cumulatively we understand from our partners is what they're providing for. I can only say this here in utmost confidence.
So far what we've seen over the last, you know, on a static pool basis, that the net credit loss is much lower than the expected credit loss being called out here by our partners. We continue to maintain a very conservative approach in making sure that our partners are clearly aligned toward the risk practices that they would like the portfolio to be generated for, and hence always maintain the ECL number as far as the benchmark is concerned, while our incentives are linked to the portfolio performance of net credit losses.
Thank you. Thank you, Bhavesh.
A quick word on our commerce and cloud business. This grew 61% year-on-year for revenues of INR 320 crore in the last quarter. The cloud business grew 88% to INR 217 crore. We saw strong growth across all of our business lines, particularly advertising, credit card, and cloud services. Our commerce business grew 24% year-on-year, slightly slower than the rest of our businesses. The main reason for that was the impact of Omicron for 3 or 4 weeks. Obviously, travel and entertainment get hit the most. There's a bunch of outside data, for example, amount of domestic air travel and so on, which sort of validates the fact that travel and entertainment sectors were impacted in the last quarter. Despite that, we grew 24% year-on-year.
Our Q-on-Q impact was on account of festive season in the previous quarter. These are our financial numbers, which all of you have available in our earnings release. I just wanted to call out a few things. Our payment processing charges grew only 52% year-on-year, whereas our payments revenue, as you saw earlier, grew about 80% year-on-year. That is a significant gap that we are seeing contributing to leverage, good leverage and profitability. The three main reasons we continue to optimize on transaction routing to lower cost payment gateways. We are seeing great improvements in our transaction rates with our partner banks. We are in active discussion and negotiations with them.
We're also seeing an increase in share of low-cost instruments in mix, including for wallet loading. UPI benefits us. When customers use UPI for wallet loading, that is financially beneficial for us. On contribution margin, we're seeing a strong growth in contribution, driven by margin improvements in payments, largely because of what I mentioned earlier about payments processing charges, not growing as fast as revenues. We're also seeing a huge increase in share of high-margin offerings such as lending and cloud. Quick bridge from contribution margin to EBITDA. Like I mentioned earlier, our EBITDA improved by 12% year-on-year. Our marketing cost has declined 21% on a quarter-on-quarter basis, despite investments in sponsorship, because we had a lot of cricket matches last quarter and growth in user base.
Our Q1 has also got a lot of cricket, including IPL and international matches. We expect marketing costs to remain high in this quarter. Employee cost, we made significant investments in our, in FY 2022 in our sales team, for merchant acquisition and in our technology teams, which is why our employee costs went up 64% year-on-year. On a full year basis, it went up 51% year-on-year. We'll talk a little bit more about the trends there. We do believe that our current headcount is sufficient to support our growth plans for next year. That's an important phase of our company, where we added a large number of employees in the last year, but we don't expect our headcount to go up from here.
As a result of this, like I mentioned, our EBITDA improved by 12% year-on-year. As a percentage of revenue, it improved to 24% from 51%. Obviously, we are seeing a step change in EBITDA margin as well. Finally, just to wrap up, we are on track to achieve operating profitability by September 2023 quarter, like Vijay mentioned, as defined by EBITDA before ESOP costs. I wanna just summarize some trends in our business. We are seeing consistently growing and engaged customer and merchant base, like Vijay mentioned. Customer monetization is gaining momentum. We are seeing that growing engagement on our platform, regardless of which payment instrument it is through, gives us monetization opportunities across payment, lending, and commerce.
Similarly, on the merchant side, merchants who start their journey from free products, such as QR code, are increasingly adopting device subscriptions and lending, which are obviously monetizable products for us and very high contribution margin. We're also seeing attractive upsell opportunity via lending. We disclosed earlier this week that we have now hit the run rate of INR 20,000 crore of annualized lending dispersals through our platform. On our revenue growth and operating leverage trends, we're, like I mentioned, seeing 89% growth year-on-year. We expect the strong momentum and revenue growth to continue. We're seeing clear trends in contribution margin improvement, 21% same period last year to now 35%, and we are saying now that we expect to see continued improvements in contribution margins.
On indirect expenses, I wanna call out those two investments that I mentioned on the previous page. Marketing expenses to drive MTU growth at 40% year-over-year, and employee costs to drive device deployments to somewhere between 800,000-1 million devices per quarter, and investments in technology. We are saying now that we expect moderation in indirect cost growth going forward, and we expect the trajectory of EBITDA improvement will steepen starting next quarter. I finally wanted to give two quick updates. One is a slightly sort of clarification matter. You will see in our income statement, below net profit, in other comprehensive income, that we have seen a gain of $125 million. That is because of revaluation of our stock acquisition right in PayPay.
That is not impacting our net income positively, but it is impacting our other comprehensive income positively. We believe that our stake in PayPay is very valuable. Secondly, a couple of weeks ago, we had done a press release that we are going to go down the general insurance route through an organic route. Our board last night has approved that we will invest INR 950 crores over the next 10 years in our general insurance venture. Those are two material updates which I wanted to share towards the end of this call. With that, I'll hand it back to the moderator.
Thank you, Mr. Madhur Deora. We will now proceed to Q&A. If you wish to ask a question, kindly utilize the Raise Hand feature on your Zoom dashboard. We will unmute your line and take your question in the sequence of raised hands. However, a reminder to please have your first name, last name, followed by your company name in brackets visible at all times. Only then will we be able to identify you and take your questions. With that, the first question of the session would be from Mr. Sachin Salgaonkar from Bank of America. Sachin, your line is unmuted.
Thank you for the opportunity. I have a few questions. First question, Madhur, if it is possible for you to give a breakdown between UPI and non-UPI GMV. To Vijay's point in the opening remarks when he mentioned that you guys are experimenting with some levying surcharges and some of the other things. A rough take rate on both of them would be helpful.
Yeah. Sachin, on UPI versus non-UPI split, we have not disclosed that. We have told folks that it is UPI, slightly more than 50%, but that is not a number that we are disclosing. On levying of convenience fee, this has been sort of an ongoing activity. For example, we started with levying charges on credit card to wallet add money, and we're just expanding the scope of that wherever we think the customers are happy to pay for the convenience that we offer. I think the best thing to get a sense of that is to just look at the difference between our non-UPI GMV growth and our revenue. Vast majority of that comes from increase in take rates.
Got it. Thank you. Second question, you know, clearly a great work in terms of reducing the payment processing charges. The question out there is how much room for further optimization and how low could this go as a percentage of GMV?
We expect to, as a percentage of revenue and as a percentage of GMV, for this to continue to improve. For the same three factors that I mentioned, those trends are ongoing trends. Transaction routing continues to keep getting better. Our transaction rates continue to get better, and transaction mix continues to improve in our favor. We believe that all three trends should continue to contribute. Our payments revenue should grow faster than our payment processing charges.
Would this be the primary line which, you know, shows perhaps the biggest delta going ahead, from a cost perspective?
When you think about payment contribution margin, that is correct. Obviously there are other reasons why contribution margin is growing very fast, which is the mix of, our financial services business, primarily lending, going up as a percent of revenue, and that is a higher margin business for us. Secondly, we are seeing, generally speaking, improvements in our commerce and cloud business, as well as improvements in margins also in our commerce and cloud business.
Got it.
I also would add, Sachin, that when I was talking about UPI and you were asking your earlier question, that more number of merchants are ready to pay Soundbox rental subscription, which, because that is coming in, the margin looks increasing and that means that our revenues are not dependent on MDR. More and more payment revenues are moving towards large number of customers, merchants paying for subscriptions.
Got it, Vijay. Third question perhaps is to Bhavesh on this entire rising interest rate, what we are seeing right now. I completely understand you guys are more as a distributor, but the general consumer who ends up getting the loan is, you know, at some level a risky base, given that, you know, traditional channels are not lending. What kind of an impact generally you see on this base and to your numbers going ahead in this rising interest rate environment?
Sachin, two clarifications I just wanna make. One piece here is we are not only focused to new to credit or people who are typically at the bottom of the pyramid. Important part here is that our 100% of our PL business is to all the people who have taken a loan, and our average bureau scores continue to be in the range which is called prime range by the banks and non-banks. Postpaid and merchant is where 75% of our customers are already credit tested, and they also continue to be in the range called prime range by the bank, which is generally arguably a number of about 700, 725, 7.
A very small percentage of our portfolio is new to credit, which gets significantly augmented by the Paytm payments data, which actually helps the banks and non-banks to underwrite them, and they continue to perform reasonably well. To your specific question, rising interest rates, very honestly, the unsecured credit market has more resilience to increase of interest rates because those margins and spreads for banks and margin and spreads for distributors like us are fairly decent. So far, with a 40 basis point increase in rates, we haven't seen none of our lending partners come back and increase rates to our consumers and merchants. I do believe that the rates are to further go up by less than 100 basis point. We could see maybe 25-50 basis point increase of rates to the end consumers and merchants.
Given the ticket size that we operate in, it does not have any impact on our commercials or has any impact on the demand by the consumers.
Thanks. That's very clear. My last question, perhaps, Madhur, if you guys could give a little bit more color on, you know, the ban by RBI on Paytm Payments Bank for acquiring new customers. The timeframe for resolution and what kind of an impact would we see in near term because you guys are not allowed to acquire new customers out there?
I'll let Bhavesh answer that question.
Sure. Sachin, the Paytm Payments Bank, as you know, is an associate of One97 Communications. We as investors of Paytm Payments Bank have a clear understanding of what the bank is currently engaged with the Reserve Bank of India. Two updates in that regard. Number one piece is that the process that the regulator laid out for the bank is working in a time-bound manner. We do believe that the broader lifetime limit the bank has been given, which is between three to five months, the process hopefully should get over.
We obviously are dependent upon the audit and everything else that the bank is expected to deliver, and the bank is fully prepared to deliver it and has been able to do a wonderful job the last 30 days of demonstrating its intent and also the outcome as and when the entire RBI audit is completed. To the second question that you have said about the impact. There is no impact to existing customers of the bank. The existing customers of the bank continue to manage their wallets or bank account, debit card, net banking as they were doing earlier.
As you know, that Paytm Payments Bank has a very, very large consumer base, and hence, their ability to really churn that consumer base and merchant base for more activation is an objective which is always a primary objective of the bank, and they continue to do that job far more effectively and efficiently now. UPI continues to be something which the bank is allowed to do, so we continue to onboard new customers on Paytm app for customers who want to come and add UPI handle to their payment, and hence the customer acquisition is happening. Purely new wallets and purely new CASA accounts is something which is currently not allowed. To that extent, the impact has been exceedingly extremely marginal, and you could see that in our April announcements on MTU that our MTU have continued to grow.
Okay. Pretty clear. Thank you, guys.
Thank you, Sachin.
Thank you, Sachin. The next question is from Mr. Bhavik Dave from Nippon India. Bhavik, your line is unmuted.
Yeah. Hi. Am I audible?
Yeah.
Yeah. Hi. Just a couple of questions. One is, if you can clarify, what is the kind of government reimbursements that you would have got? Like, we spoke about it last time as well, but this time around is there any monies that came during the last quarter has got amortized this quarter as well in the revenue line item? And what is the quantum that we got for FY 2022 for the UPI reimbursements?
Bhavik, the reimbursement was received during last financial year and for each of the quarters and there is a small amount that did come in Q4. We haven't quite disclosed that amount, so I'm gonna refrain from doing that. It was not a material movement to our sort of revenue trends.
Sure. Second question is to Bhavesh, sir. Just to understand this postpaid product better, and we have like 4 million-odd customers here. Just want to understand out of the INR 2,000 crores that we disperse. This is a product where customer might or might not pay on time and revolve over like two, three months. Just want to understand out of the people who take this credit, how many revolve and they extend the credit for like the longer duration versus just paid at the end of the month, if you could.
Less than 5%, Bhavik.
Sorry?
Less than 5%.
Revolve, is it?
We do not have an option of revolve.
Okay.
Revolve is a credit card feature.
Right.
The consumers, based on their risk profile, are given an option by the lenders.
Sure.
That they can convert their outstanding into an EMI.
Right.
There are two features. Not 100% of borrowers who opt for postpaid have an option to convert.
Okay.
The ones who have an option to convert, a very small percentage convert that product. I repeat again, for the benefit of everyone. Paytm Postpaid is positioned as consumption credit product.
Right.
Hence, if you see the ticket size of INR 3,500 now moving towards INR 4,000 is
Yeah.
85% of the spends are towards consumption spends, grocery, fuel, medicines, et cetera, et cetera.
Got it.
Hence the consumers are more willing to pay at the end of the 30-day period versus revolving or converting to EMI. We see that number to be less than 5%.
Sure. Just another point on this is when we see the disbursement growth, right? Like quarter-on-quarter has been extremely good, like you mentioned, 50%-60% kind of growth. But when you look at the revenue momentum, right? That's only 35% kind of growth that is visible there. Any reasons why this slowdown on quarter-on-quarter basis when it comes to disbursement versus revenue growth on the lending business?
Yeah. A, that entire revenue is not attributable to lending, but at the same time, a disproportionate portion of the revenue is attributable to lending. The mix is an important factor. As we have said in the past, postpaid has a marginally lesser revenue or take rate than PL and merchant loans. Any quarter where we see a marginal change in the mix, we will find a very small reduction in the revenue as a percentage overall, and hence it could appear to be small. Quarter four, we did see postpaid as a percentage of our total disbursement increase much beyond 50% of total disbursement, and hence that's a small impact. B, the portfolio incentive is also deferred.
The more business we're doing, more we are deferring our portfolio incentive, and hence we will see some back-loading of incentives to that extent.
Understood. Just on the payments business, right? Like I remember during IPO we mentioned that out of the 55 million then customers used to around 30%-40% or around 50% of the customers are Magic customers, right? Like, who have three uses.
Right.
5-6 transactions per week. What would be that commensurate number now with 70-odd million MTUs that we have? At that time you mentioned that almost 30% of the customers used to be new to credit, 30% with thick files and 30 with thin files. How is that mix, how is that mixed now, and what is the kind of penetration that we've already done within the 70 million? If you could just talk about that.
Yeah. Bhavik, 72 million MTU, we have now delivered 4 million. That number stands as approximately 5%.
Right.
of the MTU. We are seeing that on a month-to-month incremental basis, we are able to add close to about 400,000 new postpaid users. This number is looking at a very secular trajectory. We haven't seen that number change materially at a downward trend. We've only seen an upward trend to that number.
Sure.
We continue to deepen our relationship with our existing MTU customers. From a lender's perspective, they continue to have more than half of our MTU base whitelist it for postpaid. That funnel is very, very strong for us. I think we have seen a small reduction. Instead of 30, we've seen about a quarter of our customers are new to credit.
Right.
The remaining customers continue to be credit tested, et cetera. We are just seeing as the portfolio is maturing and as the product is now getting accepted at 9 million shops, there are more and more good quality customers, not just good quality purely from a credit profile perspective, but customers who are more evolved, who have credit cards with them, but they would—they love the product and the ease and convenience of the product. We're seeing a lot more people who are owning credit cards coming and opting for paying postpaid and which is a very good sign for this business.
Sure. Last question is on the credit card itself. I remember we mentioned that that is a part of cloud. When does it normalize or what? How do we think about this business, right? Like, because that revenue that we originate cards for, like HDFC Bank or SBI Cards or Citi, sits within the cloud business, if I'm not wrong. When do we plan to normalize it towards the lending business, or will it continue to be in that cloud business segment revenue line item?
Maybe I could take that.
Yeah.
That business is run by our lending team. It does get operated by Bhavesh and his team. It's purely a sort of auditor discussion point that it sits in the cloud. We will have discussions with the auditor later this quarter to see if they have a preference for that being in cloud or on-prem. We do understand that from just an investor valuation perspective, it might be better to have that in lending. That's also subject to our conversation with the auditors.
Any quantum, like what would be, like the normalized, like pure cloud-based revenue versus when we strip out that credit card business, how would the cloud income look like? Any color? Any number that you could state?
If we do break it out, Bhavik, we'll show historical numbers as well.
All right.
I'll just hold back on that because that's not a number which we have disclosed so far.
Sure. All right. That's helpful. Thank you.
Thank you so much.
Thank you, Bhavik. A request to everyone to try and limit to two questions per person, given the Q&A queue currently and the scheduled time.
Next question would be from Mr. Manish Adukia from Goldman Sachs. Manish, you can unmute your line.
Yes. Hi, good afternoon. Thank you so much for taking my questions. My first question is on the payments business and the monetization there. Again, on the reported basis, the take rates were stable quarter-over-quarter, but if I, let's say, just strip out UPI, based on my estimate, the take rates, even excluding devices, seems to have seen a pretty sharp jump, and this was again on the back of a jump that we saw last quarter. Can you just help us understand again as to, you know, what's driving that take rate on non-UPI higher again, and how should we think about the sustainability of that? That would be my first question.
Yeah. Maybe I'll start with that and Bhavesh can add as well. I think the 2 major reasons, 1 is mix effect of you know various instruments that we process on our platform. And the second is our growth in one of the key things that's happening in Paytm is that we are capturing a huge a larger and larger amount of non-UPI payments in the offline world through our devices strategy. Out of the 3 million+ devices that we have deployed, a fair number of them are card machines, and which basically we did not do as a business 2 or 3 years ago.
As a result, the overall share of all card transactions that happen in India in the offline world that go through Paytm has gone up very meaningfully. I don't know, Bhavesh, if you wanted to add something to that.
Yeah. So Manish, two more trends that I can share with you. One piece that is that our penetration is continuously increasing in the mid-market and enterprise segment, which is basically on the B2B side. The more and more we're able to penetrate in that area, not just we are attracting a lot more credit card and debit card penetration on which we make a decent net take rate. We're also doing a lot more EMI aggregation now than we were a quarter back. You will see this trend continue because not just Paytm has its own EMI product, and Paytm Postpaid product, but we also aggregate for other issuers of credit card specifically and BNPL players on our devices. Now this trend is very profitable.
The take rates are generally much higher than the net take rate that you get on a credit card business, and that's been a delta that we could see in the system. The second big trend that we're seeing it is that the consumers coming in, making payments using credit cards and other credit bearing instruments on our platform, are increasing and they're happy to give us much higher margins. We are also able to charge the merchants a bit more higher margins on the overall integration and convenience we're able to provide to consumers and merchants. That's really seeing a very good uptake for us and demonstration of net product that Paytm has built on its average.
Just one other thing to add, and then you asked about how should you think about these trends. I think the right way to look at it is the growth of payments revenue versus the growth of non-UPI on our platform. That gets you sort of to a closer and truer picture of how we're doing. We have said before, and this trend continues, that we expect that to be broadly stable. If we do a really good job then maybe marginally increase.
Thank you, Madhur. Madhur, just if I can confirm. Based on your and Bhavesh's response, whatever we've seen in the last Q2 in terms of uptick in the take rate, you're saying it's more structural rather than a Q2 phenomenon. There's no reason to believe that in the near term it will come down again sharply. Is that a good understanding?
Just to clarify, I think we don't exactly look at the business on the basis of payments revenue divided by GMV. We look at it on the basis of how is our payments revenue tracking relative to the growth of non-UPI GMV. On that basis, we believe that there's no structural decline. Which is to say that the fact that there is a low or zero cost instrument in the market doesn't mean that we cannot monetize the other instruments. In fact, we do monetize them. Customers are continuing to use them and more and more and more. We monetize them and they're quite profitable.
Sure. Thank you. My second question is on just the profitability and guidance which you again reiterated for September 2023. Of course, you know the macro environment has become increasingly difficult in the last few months. As we think about from here to the next, let's say Q5 or Q6 before we, let's say, reach profitability, what are, let's say the one or two key things that, you know, investors and analysts should monitor as we think about, you know, your path to profitability or what are, let's say, the key drivers in your view that we should be thinking about for Paytm to, you know, reach profitability in the next quarters?
I think, like I was touched upon in the last page of my presentation, increasing contribution margin that is being driven by improvement in margins in the payment business and the mix effect, particularly with respect to lending becoming a larger percentage of our revenue. That's one. The second is, the growth of our indirect expenses would slow down, right? It would continue to grow, but they would slow down. We have also said, towards the end of the presentation that we expect the improvement in EBITDA on a sequential basis to steepen.
Sure. Thank you so much, for taking my question. All the best.
Thanks, Manish.
Thank you, Manish. The next question is from Mr. Saurabh Kumar from JPM.
Yeah. Hi. Just had two questions. One is on this indirect expenses model. I mean, you know, you've guided that the employee costs will not go up materially. For the full year, should we expect a number which is something similar to Q4 analyzed? And what will be your guidance for the indirect expenses growth? And if you could just break up between these four items you have and how should we think about each of those line items? That's first. Yeah. And the second is, you know, again, on the guidance, the September 2023 guidance would assume that by that point the contribution profit should be in the 40%-45% odd ballpark. Will that be a fair assumption? These are two. Thank you.
On your first question, just to clarify, we have said employee headcount should not go up. We obviously, you know, we give annual appraisals to the employees who do really well and so on. There might be some uptake on employee costs but I think it's important given the amount of headcount that we added last year, particularly in those two areas, technology and offline sales, that we did last year. We wanted to clarify that we feel like we're fully capacitated in those areas. It was more a headcount comment. In terms of growth, we do expect it to moderate across the board, indirect expenses. Our indirect expenses last year in marketing and indirect expenses grew about 60% year-on-year.
Our technology and other expenses grew between 30% and 40% year-on-year. We expect all of those line items to moderate. One of the key drivers, to get to the second part of the question, one of the key drivers for us to get to profitability, is the improvement in contribution margin, which I was referring to in the conversation with Manish as well. I don't wanna call out specific numbers, but yes, it will be one of the key drivers, and we are confident of improving contribution margin.
Madhu, like, when you say moderate, what should we think about what is moderate? Like, you know, is 30% moderate? Is 40% moderate? Like
I think if you work backwards from the EBITDA numbers, sorry, EBITDA breakeven point that we had made, then you sort of get to what those indirect expenses look like Q6 from now.
Okay. Thanks.
Thank you, Saurabh.
Thank you, Saurabh. The next question is from Mr. Piran Engineer from CLSA. Piran, you can unmute your line.
Hi, am I audible?
Yeah.
Yeah. Hi. Thanks. Congrats on the quarter. Just a couple of questions. Firstly, in our revenues from services to merchants, could you give us a broad mix of the subscription related revenues and the payments related revenues? I'm asking this because we've seen, you know, the number of devices we deploy go up 50%, quarter-over-quarter, but our merchant revenues are still down quarter-over-quarter.
Yes. We charge anywhere between 2 and $2.50, about INR 125-INR 150 on a blended basis. Sorry. We charge INR 125 for our Soundbox, and then it sort of goes up from there for various types of devices. On an average, it's about INR 150-INR 175 a device, depending on the mix, maybe INR 200 a device. That's the trend. You are right.
No, no. Sorry, Madhu. To cut you short, out of our INR 575 crore revenue, what percentage of that would be subscription related?
Yeah. We haven't given that breakup, but what I was trying to help you with is that, yes, devices subscription revenue did go up last quarter. The Q on Q is purely because of huge amount of demand that we see in the festive season, right? If you are trying to adjust for seasonality, yes, there is a seasonal impact in payment services to merchants, which is pretty significant, both in offline and online. On a year-on-year basis, that number is up 80%. I know I'm not sort of directly giving you the exact number that you want, that you're seeking, but that might be a way to think about how to model this.
Okay, that's fine. That leads me to my next question. Our total GMVs are flat or slightly up 3%-4%, and merchant related transaction volumes are down. Does this basically mean that bill payments by consumers on the app is up meaningfully quarter-over-quarter? Because what balances the total GMV number otherwise?
Yeah, that's right. Our consumer engagement on our app transactions, GMV revenue, did see a very very sizable improvement in Q4.
Okay. The consumer engagement is essentially bill payments, right? Or could there be some other sort of engagement?
Yeah. Vast majority of it is bill payments. The customers also add money to Paytm wallet on our app. Obviously, they also do money transfers on our app. If you're trying to compare GMV and revenues, yes, there was significant GMV growth on our consumer app, and there was significant revenue growth in our consumer app as well.
Got it. My next question is on UPI Lite. How do you sort of think about the future of wallets when you have UPI Lite?
Vijay
Yeah. The UPI Lite is a client side storage of money for avoiding the failures of UPI. If you would have noticed, there were in IPL days, UPI system was officially kept on hold, that you cannot do balance check, et cetera. This is a method that UPI is taking as offloading traffic. As far as use case of wallet is concerned, our wallet is used by customers who transfer money from their bank account to a wallet instrument so that that can work. I mean, as a product user, I can say that wallet serves lot many more different requirements. For example, like the same wallet balance is used in NFC Card, FASTag, offline payments, online payments and so on and so forth. While UPI Lite will be trying to solve the throughput requirement that banks CBS systems solve. They're two different products.
No, but sir, if the threshold for UPI Lite goes up from, say, INR 200 to, say, INR 500 or 1,000 rupees, and your wallet average ticket size is also around 400-500, so then essentially the use cases of wallets can be also solved with UPI Lite, right? Online payments, offline payments, et cetera. Do you not see this as a threat at all?
At least not yet. We don't see it as a practical usage and the product workflow wise.
Okay. Okay, that's fair. Thanks for taking my questions, and all the best.
Thank you, sir.
Thank you, Piran. The next question is from Karan, Mr. Karan Danthi from Jetha Global. Karan, you can unmute your line.
Hi, Paytm team. I have two questions. One is, you know, you mentioned the sort of these deferrals that will come through. Could you perhaps add some more color there? You know, just the value of those deferrals, the timing of those deferrals? Because it feels like it could be quite meaningful and help us perhaps even get to profitability earlier, if we get that upside. So I just wanna understand if that's also baked into your September 2023 timing. Then, a second question I had was related to collections. I just wanna understand what is your collections related OpEx and how does that scale from here? And can we scale it in a more moderate fashion even as the lending book keeps growing at this rate?
Now, I know we do digital collections to the extent possible, but I'm curious as to, you know, once certain levels in terms of the size of your lending book, whether that has to change.
I'll take the first part.
Yeah.
Our September quarter breakeven is explicitly and completely based on operating revenues. Any extraordinary charges like ESOPs or any extraordinary gains, if there are not at all either part of the plan or even calculated or factored in. It's completely, absolutely operating revenues and operating cost basis. That's what you should factor in. Rest I think it's Bhavesh.
Yeah. Karan, if I understood your question correctly, the first part which is when you're talking deferrals, you're talking about the collection portfolio incentives. Is that right?
Yes.
The way we see this piece is that the way it works is that the lenders expect the portfolio to perform in a particular manner and based on their own accounting guidelines of expected credit loss, they are provisioning that this book is gonna, let's say as an example, give them a loss of 5% or 6%.
In our estimates, when we are doing and helping them to collect as an outsource partner, we are already seeing on a static pool basis a book that we originated, let's say 12 months back, because the rapid tenure, as you see for merchant loans and personal loans, which are a very large chunk of deferral incentives built into the entire economics, we are seeing already that amount is ranging between 1%-1.5% of the loans that we disperse. We do believe that this number, as we keep growing, should continue to be accretive to our business. Will it become very, very large? The answer is no. Our model of lending is not built on deferral incentives. Our model of lending is built on upfront distribution servicing revenue.
If you're able to make a deferral incentive of 1.5%, that's an upside that we don't plan for, but we hope we can get that upside to have any kind of downside if at all in the future, we which it can negate. So far we've seen that number in that range bound, and we do believe that number should continue in that range bound on large support. To your other question on collections. We have our own collections infrastructure, which is a company called CreditMate. It is a 100% subsidiary of Paytm. Now, we do three parts of collections. We do pre-EMI delinquency management, which is using the entire Paytm app infrastructure to reach out to consumers and merchants far more effectively, smartly, to make them and nudge them to make a payment in time.
That's the reason if you could see that our bounce rates that our lenders observe on the portfolio originated on customers continue to be in the range where the prime borrowers behave. B, we have again the second part, which is a digital engagement model, which has zero cost to us because all led by technology, both in terms of digital engagement on the app and bot engagement that which is done through either the app or through our progressive and predictive dialing infrastructure that we have. A very, very small percentage of our consumers and merchants have a physical leg of collection for which we have more than 100 people on rolls of Paytm, which number hasn't been growing. That number, let's say Q2 back, would have grown by about 25 people. We don't see that cost materially change.
In totality, collection cost is very, very low. I can't quote a number because that's a commercial conversation because we do price our business in that manner, but it's significantly lower than what generally the lenders expect in the market from traditional collection companies. That number is not going to materially alter our commercials in the future.
Got it. Thank you. Just one follow-up to the first question, which is can you then monetize portfolio upside by increasing take rates for your lending partners if that portfolio continues to perform? And is that an annual conversation?
Bang on. It is actually not an annual. It's a six-monthly conversation, and we do engage at two levels to make sure that our consumers and merchants are getting the best pricing because typically lenders tend to be risk pricing it bit on the north side. Our intention is that consumer and merchant should get the right price. Obviously in that bargain, we also renegotiate take rates for ourselves, and that could reflect into our books and P&L hopefully from Q3 , Q4 onwards as the portfolio matures for most of our lenders. The answer to that question is yes.
Thank you.
Thank you, Karan. Next question is from Mr. Nilang Mehta from HSBC.
Yeah, thanks for taking my question. My question was regarding merchant loans. Just wanted to get a sense that what percentage of these are digitally sourced or do you have a physical sourcing for merchant loans as well?
No. Nilang, we have zero physical engagement for any of our loans. We have zero call center for any of our loans. Only for merchant loans in particular, where we have an offline payments team who engages the merchant for devices of workforce. If the merchant needs any assistance in navigating only through app, they do seek the help of the field sales executive or the account manager who will be mapped to that merchant to help them navigate the loan on the app of the merchant. There is no field force that we have or call center we have for any of our businesses.
The kind of credit limits you give to merchants is function of velocity of transactions which you see through the payment device.
Yes, it is a combination of velocity that we see. It has four elements at a high level. The kind of consumers who come and make a payment to the merchant, the consistency of those consumers coming and making a payment to the merchant, the kind of instruments that customers are using to make a payment to the merchant. This is at the one vector. The second vector that we have it is looking at the kind of the value of payments and the number of payments the merchant is getting, and obviously the frequency of the payments. Is it every day, every second day, third day, fourth day? Based on these two information plus a lot more intelligence that we have about the merchant, the merchant is allocated a limit which is eventually approved or declined by the lending partners.
That's the lending length. The merchant could take anywhere to as low as INR 25,000 and as high as INR 500,000.
Just one last question, if I may. Regarding your merchant base, if you could give some color on what is the concentration of transactions and what is the retention rate of the merchants you acquire every quarter. Out of the 2.9 million, like, what is the dropout rates, if you could give some color on that?
See, it depends upon the kind of merchant that you ask, because there is at the bottom of the pyramid, we have the QR merchant, wherein we do find that the activation, if you look at an M6 activation, that will be somewhere in the range of 30%-50% because these are merchants who have zero inertia in changing the QR code. They don't pay anything for it. The moment you come to device merchants, which is what we index our entire focus on, because QR code is to bring the guy into a digital ecosystem, upgrade them to an IoT product, which is a Soundbox or an EDC. There we see the M6 activation and retention of more than 85% of both our merchants. Soundbox actually we see much higher, but on EDC devices we see it more than 85%.
Okay, thanks. Thanks a lot.
Thank you, Nilang Mehta. Next question is from Mr. Shubhranshu Mishra from UBS. Shubhranshu, you can unmute the mic now.
Hi, good afternoon. Thank you for this opportunity. Madhur and Vijay, many congratulations on the reappointment. My first question is on the note number 8 which says that Vijay's got around 21 million ESOPs with certain milestones. If we can discuss those particular milestones here, what are they and what would be the respective timelines? Second, when are we likely to see a profit, the bottom line, not the EBITDA ex-ESOPs? Is it FY 2024, FY 2025? If we can discuss that. That's the second. The third question is on what happens if Vijay and Madhur both are out of the business for any reason? How does this organization go forward? These are my three questions. Thanks.
Maybe I'll attempt all three, and Vijay and Bhavesh can add. On the first one, we have said in the April letter, Shubhranshu, that none of these ESOPs would vest to Vijay until the stock price goes above the IPO market cap. So that's the guidance we have given. So, there's a tranche at that level, and then there are tranches at higher levels. Basically, that is the crux of the milestone. On your... Sorry, can you just repeat your second question? I didn't-
When do we see a profit and which absolute profit?
Oh, sorry. I got that. Yeah, our view on how our financial performance should be measured is that we should look at EBITDA before ESOP costs because that is the closest to cash operating EBITDA. The number of shares outstanding that investors should use is 695 million. What some analyst investors do is they don't take the 695, they actually take a lower share count, and then they start looking at EBITDA at reported EBITDA. We don't think that's the right way of looking at that because the ESOP charge is a non-cash charge and is better adjusted in the share count because that is effectively the dilution that investors are taking.
Having said all of that, one additional thing that I can add is that the ESOP charge will remain high for 10 quarters. We are now in the Q3 since October one last year. Since October 1 when the ESOP charge went up, expected to remain high for 10 quarters and then start coming down after that. That's the way sort of ESOP accounting works. On the third question, I'd love for Vijay to add as well. One of the conscious things that we're doing is making sure that there's a very, very deep management team at Paytm. We are a very ambitious company, and we see a huge amount of opportunity in India.
Vineet, Vijay, me, Bhavesh, we have really built extremely good talent at the next level and the level below that. That is the culture. That is the culture of empowerment. It is trying to build the best talent that we can in the organization who also believe in the mission that we do.
Many thanks. Best of luck.
Thank you, Subhanshu.
Next question from Mr. Kunal Shah from ICICI. Kunal, you can unmute.
Thanks. The question is with respect to the marketing and the promotion income-
Kunal, I apologize. Your line is not very clear.
Okay. The question is to the
I apologize. It's not working, mate.
Maybe we can go to the next person and come back to Kunal.
Okay.
Sure. Sure.
All right. I'll take it offline, yeah.
Sorry about that. Just a reminder of the time check. We have about time for three or four more questions, the remaining time. With that, we'll go back in the queue to Mr. Saurabh Kumar from JPM. Saurabh, you can unmute your line.
Hello.
Hi.
Yeah, just one follow-up. You know, on the POS device, is it possible to quantify the rental contribution and what will be the activation rate post six months currently for your, Soundbox devices? Thanks.
Yes. So, Saurabh, I'll just repeat the answer just gave earlier. We are seeing M6 activation of more than 85% for our Soundbox devices. In fact, more than that. ADC is ranging between 80%-85% on activation, M6.
Okay. Basically, the 150 into this 85% should basically get us to the retail number.
Mathematically, it's not to say that the remaining people who are inactive, they remain inactive and they don't pay rent. This I'm talking about are less than active. Rent activation typically ends up being a bit more.
Okay. Okay. Got it.
Rent is itself a function of not just rent but also cloud subscription fees that they keep paying. We keep doing cross-sell and up-sell, so.
Yes, that part is very clear. Okay. Thanks a lot. Thank you.
Thanks, Saurabh. Next question to Mr. Nilang Mehta from HSBC. Nilang, you may unmute your line. Nilang, I'm sorry, your line's not very good.
Been answered by Parag, sorry.
Maybe we go to the next question. We try to come back to Nilang. Next question we'll take is the repeat question from Mr. Karan Danthi from Jetha. Karan, we can unmute.
Yeah. Sorry. No, I don't have any more questions. My questions were answered sufficiently. Thank you.
Thanks, Karan. Sure. Thanks. Next we'll take Sumeet Kariwala from Morgan Stanley. Sumeet, your line is open.
Yeah, hi. Good afternoon, everyone. I had a quick question on wallets getting interoperable. Is there any decision on the interchange MDR? It was supposed to get operational from April, so just trying to get an update on that, please. Thank you.
Sumeet, you're right. This was supposed to get operational from first of April. I think there is some delay in getting alignment on tech specs, et cetera. We do believe that it should get operationalized soon, and we're pursuing the network and other participants to make it operational. The commercial alignment broadly has been achieved, but the operational alignment is something, a lot more work needs to be done. We are hopeful that maybe in the next couple of months it should be operational.
Bhavesh, is this the right time to get some details on the commercial alignment, in the sense interchange or you're saying leave that for them?
No, obviously it's yet not in public domain, but it is in line with our expectations that we wanted it to be. I can say only that much.
Got it. Bhavesh, just one more question, very quick. Would you be able to share as to how many loans for individuals in the Paytm Postpaid and personal loans would be related to, fintechs or startups and so on?
Sorry.
Like, what percentage of loans for individuals would be from fintech or startup sectors, gig economy, et cetera?
Sumeet, I'm sorry, we don't track it in that detail.
No, no. We don't do anything to the gig economy.
Yeah.
We have absolutely no connection whatsoever with any merchant partners, gig economy people. We don't give loan to any rider, et cetera, that we would have partnered, let's say, with some food delivery service, have some local delivery services. These are the customers who have active long-term usage of Paytm app when it comes to consumers and our usage of Paytm merchant. We don't rely on somebody else's data or access to their customers. Sumit, this is not even applicable for us.
Sumit, it would be an easy question to answer if we were using channel partners or doing any-
Mm-hmm.
Sort of other fintech or foodtech or other partnerships. We don't do that. Hence, if somebody is a gig worker, that is not a data point that we track. What we track is how their engagement on Paytm platform.
No, I'm just thinking that some of these users could be using Paytm quite often.
No.
Therefore in that percentage.
No. Actually, no, because, these people, as you heard from Bhavesh, that these are high CIBIL score customers, and this is convenience-centric loan, and it is not led by, these kinds of factors that you're noticing. Actually, as a Paytm user, you are welcome to be a daily user or welcome to be a, let's say, somebody else, but we don't judge on that either. That said, it's significant number of other usage variable, if you will.
It's led by you, sir.
Thank you. Thank you. Thank you, Vijay.
Thank you, Sumeet. Next question we'll take is from Mr. Sachin Salgaonkar from Bank of America. Sachin, the line is unmuted.
Hi, thank you. Just one last follow-up question from my side. You know, given your stock price where it is, and given the cash on your balance sheet, and your timeline now in terms of, being close to EBITDA break even by September 2023, any thought process from management and board to contemplate on looking at something like a buyback or anything to help? We saw some of the U.S. companies doing that.
At least I'm going to buy that I publicly made an announcement at some point of time, not because that, I think there is plan of a buyback, but there's plan of that I believe that it's a great value for our.
Mm-hmm.
Enable video. Madhur, you can talk about the rest of it.
Sachin, it had come up in a couple of conversations with investors and so on, and we had decided that for the first six months, absolutely not. We're not gonna discuss it, and discuss it with the board and so on. We may, as we move forward, evaluate the environment, and let the board take a decision on that. But for the first six months, we were heads down focused on making sure that we meet investor expectations with respect to revenue, contribution margin, profitability. You're right with the observation, which is, given our September 2023 timeline, at the time we hit operating EBITDA breakeven, we would have substantial amount of cash on our balance sheet. A very large percentage of the IPO cash.
We do have some options, but we will at the appropriate time discuss that with the board.
Madhur, the first six months are largely done, right?
Exactly. The first six months are just done, like three days ago.
Yeah.
We will over the next few months go to the board with various options and make a decision based on all factors.
Okay. There is a possibility in the next six months , depending upon how you guys in the board thinks, we might see something.
Yeah, it would depend on a number of factors and the board would have to take the final decision, but I don't have anything to sort of announce or guide towards right now.
Got it. Thank you and all the best.
Thank you.
Thank you, Sachin. Now for the last question of the session, Mr. Rahul Jain from Dolat Capital. Rahul, you can unmute your line, yeah.
Yeah. Yeah, hi. Thanks for the opportunity and congrats on strong numbers. Just one question. Of course, it may sound a bit repetitive. On the payment processing charges, we've been mentioning some of the reason why it's been kind of coming off because of transaction routing efficiency and scale-up. Is there a floor that we cannot kind of reach? I know Paytm has a lot of other revenue streams, so we cannot directly correlate. Is there a kind of a floor that we can define based on the kind of mix we have right now?
You mean, a take rate flow, meaning a particular take rate?
I think the question was, payment processing charges as a percentage of, let's say, GMV or as a percentage of revenue.
Payment revenue or something.
Rahul, what I'll say is that it is fast evolving and we see lots and lots of opportunities with respect to and this is on the cost side, one of our key focus areas. It's obviously our largest cost at roughly 50% of our total revenue. You can imagine this gets a huge amount of attention internally. There are lots of opportunities here, and every time we sort of, execute against a few opportunities, more opportunities open up. It's hard to right now say where this would land, a year or two years from now as a percentage of GMV. We definitely both as a percentage of GMV and as a percentage of revenues continue to see opportunities here.
Is it ideal way to look at these charges related to payment revenues or it will be more relevant for the entire GMV as a percentage?
Uh, as a-
That's a good question, Rahul. I would say that you should take it as a payment revenue because GMV is mix of various factors including zero MDR, UPI. When government incentive comes and then there is subscription revenues or different services that we are giving. Then there are different take rate basis products like debit card of a particular network are zero, but other networks are large. Credit card is. So it's simple payment revenue. Should we bother about GMV as a number? In my opinion, it's. The best way to look at payment revenue is that how your customer base, merchant base is growing and how your payment revenue is growing and what payment growth will be. If you start to look at it as a percentage of GMV, it starts to add this variable that particular payment instrument growth is shadowing other payment instruments growth.
There is a growth from other payment instruments. I would rather keep it as a payment revenue instead of revenue divided by GMV.
Right. Maybe a slightly forward looking, but if you could give any idea, like, given the run rate that we have right now, probably for next INR 1,000 crore incremental revenue, we may have this extra INR 400 kind of a growth of extra profits, which means that at INR 2,500 crore, we would take kind of a quarterly run rate, we will have this adjusted EBITDA breakeven. What could be the journey beyond that? Will that mean that this could be a significant profit pool beyond that because our business does not have a lot of marginal cost attached to a transaction?
Will we be more spending on our objective of reaching this 500 million consumer from an activation point of view versus we are today at much lower number than that. There at that point, the cost could be of very different nature given the goalpost we will be chasing then.
Rahul, very, very good question, and especially this is the kind of conversation I do with my team, and I want to share the excitement and the thrill is that we not only will be profitable, but we'll be significantly free cash generating profitable subsequently. We don't have a desperate ambition of, in the short term, getting 500 million people on our active number level. We would remain moderate about it. We already have signed up. If you notice, as a signed up user and then, people who created an account, people who were once active, we just went through all these kind of different metrics and we found out at a time of IPO that the best thing is monthly active. The number that you're seeing is monthly active.
Surprisingly, if I was to quote 500 million customers, we already would have signed up them as a customer already before even IPO process. What we say when we bring mainstream of economy, we try saying that having a bank account, credit opportunity, wealth and insurance that any partner is like to distribute and give them access. There is a significant dependency of a partner's plan to distribute based on technology and access that we provide. It's an important thing, Rahul, as you've said, that it is to be understood that, we will be as effective as our technology will allow our partner to reach out to the customer base, understand the customer base, and offer one or two of those financial services.
Our business remains payments, which is a spread, and then our business remains bet on credit and in subsequent two, three years forward, we look at other financial services. Payment and credit, like you said, not only will be profitable at an EBITDA level. Let's say the sequencing that we look at it is would be EBITDA before ESOP, overall EBITDA, that free cash and then sizable free cash. That's the journey, Rahul, that we are looking at. We are clear about it, that a company's moat should be free cash it generates and the impact that it creates with the free cash it generates.
Rahul, maybe I'll just add one more thing, which is that at the time we hit breakeven, I do expect that both in like in areas like lending, commerce and cloud and so on, we would have still barely scratched the surface. These are large profit pools, large opportunities and very profitable for us.
Right. Lastly, if I can squeeze in one, you said something about the organic insurance business thing. If you could elaborate little more on what you said.
Yeah. We reevaluated our insurance plans, and we think at this point, it makes more sense for us to apply for an organic venture. We would have 74% stake upfront. 26%, as you know, in India, has to be owned by an Indian person. The venture, basis our business plan, requires INR 950 crores of capital over 10 years. Obviously this would go through a process with IRDA of them approving the business plan and so on. We believe that investing and creating long-term value by investing INR 950 crores over the next 10 years is a very capital efficient way for us to build this business.
I'm gonna extend, Rahul, one more factor here, that we look at it as three to five year forward business for us. We don't look at it in a short, mid-run, mid-term, number one. Number two, any of these plans that we are talking and few minutes back I was answering for any other capital gain or other thing that could be added into the bottom line, we look at the operating breakeven, meaning cash that we generate from the business and cash we spend in the business remains committed and aggressively convinced, further convinced that it will be achieved definitely by that time period. This is more for planning three-five years forward. As you understand, these various approval and processes take time in years.
Rahul, sorry, one final point to Vijay's final point. Our focus does not change. Our focus is very much what Vijay described right at the beginning of the call, which is payments and credit.
Right. Just one bit more clarification. Since we would be investing this money, of course, big part of it would be capitalized, but whatever OpEx we would be generating over, let's say, next six, seven quarters, will that have any bearing on the guidance that we have given on the EBITDA side? This is outside of that.
That's what Vijay, I think, was saying. Obviously, if we have 74% of this entity, this would be consolidated. Paytm at a consolidated basis, of course, the plan to hit EBITDA breakeven in six quarters absolutely does not change.
Okay. I appreciate it. Thank you. That's it from my side.
Thank you, Rahul. With that, we come to an end to this earnings call. The presentation discussed by the management today, a recording of this call and the transcript will be available on our website shortly. Thank you all for joining.
Thank you everyone for joining. It was really good interacting with you. I see some hands up here. I want to request them to send an email to ir@paytm.com and we will literally take every question as an opportunity to get back to you. Thank you for your support and interest in our business. It is humbling. Thank you from everyone from Paytm side. Thank you so much. Have a good day.
Thank you, everyone.
Thank you.
Bye.