Thank you for joining and welcome to Paytm's earnings call for the quarter ending December 31st, 2022. From Paytm's management we are joined by Mr. Vijay Shekhar Sharma, Founder and CEO; Mr. Madhur Deora, President and Group CFO; Mr. Bhavesh Gupta, Head of Payments and CEO in Lending; and Mr. Anuj Mittal, Vice President, Investor Relations. A few standard announcements before we begin. This call is meant for existing shareholders of Paytm, for potential investors and research analysts to discuss the financial results of the company. This call is not for media personnel. If any media representatives are attending this call, request you to kindly drop off the call at this point. The information to be presented and discussed here should not be recorded, reproduced, or distributed in any manner. Statements made on this earnings call may include forward-looking statements.
Actual events may differ materially from those anticipated in such forward-looking statements. 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 wish to ask a question. We will unmute your line and take your questions in the respective sequence. Please ensure your name is visible as first name, last name, followed by your company name, for us to be able to identify you. The presentation or replay of this earnings call and a transcript will be made available on the company website. With this, I would like to request Mr. Vijay Shekhar Sharma to kindly initiate the call.
Thank you. Thank you so much, everyone. Thank you so much for joining. I hope you're keeping healthy and hearty. It's an incredible quarter for us. We finally achieved one of the important milestone. I used to call it my own salary by my own efforts. I mean, this happened last when we started Paytm, and that is the time when we were generating free cash flow, and we used that money to start the new business of Paytm. Probably 8, 9 years later, we have come back again to that business milestone that we have started, the focus on monetization in last couple of years, and that has allowed us continuous investment in growth while improving profitability.
This quarter was a key benchmark for us to generate the profit. I'm very happy to say that you saw the team has done incredible work in growing payments business or credit business, which is the focus area that we've done. I personally looked at, along with my teammates and leaders that are in this call, the attention and the investment or dollar allocation, as we call it, to the key areas and pruned many line items over the period in last 2 years. The best part I can tell you is that I believe that this trend of generating sustained profit will continue. Our profitability is expected to grow even further. We expect to grow to become a free cash flow generating machine. I don't call it free cash flow generating company.
I wish to call it free cash flow generating machine, so let's see what comes up forward. The best part is that our focus on merchant payments, instead of focusing on consumer-led UPI payment, has created a scalable UPI revenue model in subscription. I feel highly positive and inspired by adaptation of our device business, especially Soundbox, which has led to significant scale in UPI acquiring and various subscription-led revenues that you've seen our month-on-month numbers show up. If you notice that our payment revenues are also one of those line items where we sort of do the processing. We kept cleaning up different type of merchants, different type of line items.
I'm very happy to tell you that we have completed our cleanup in last quarter, and we are focusing on only quality revenues that are profitable and have growth, which is something very predictable and recognizable. We probably would have purged, literally in hundreds various different kind of merchants if they were not profitable or if they were not useful for us or generating some kind of pain in the system. Our lending model of focusing on low and grow, if you noticed, we started with small ticket size, has now demonstrated that it is a large scalable opportunity, especially because our portfolio qualities are demonstrated over multiple payment cycles, and our lenders and partners' conviction and our alignment and specific focus to the regulatory landscape and guideline gives me confidence that we are addressing a pretty large profit pool in our credit disbursement business.
I understand that it is a business which is in infancy, so percentage of growth are very, very two digit higher, but absolute value are also, you can see, are very, very clearly growing nicely. Bhavesh will talk about them in due course. Lending upsell, which is now in my opinion, a scalable opportunity give, and it does not have any regulatory arbitrage. I'm especially calling out this line because many credit business in the country in Fintechs have been built around some or other regulatory arbitrage. What we have built is a mature business where the partners has a comfort of credit quality, regulator has comfort of the guideline, and we have grown organically, not requiring a desperate push of any kind of product on the market.
In fact, our belief is that increase in digital payment ecosystem in the country, we do see that there will be market risk or, different kind of frauds that will come in the system. I'm very confident with the quality of work Paytm is doing, the right operational risk and regulatory compliance will be a USP of our company, and the attention that we are driving on the risk and fraud in the market will become a continued benchmark in the country. If you notice, we've grown our average monthly transacting users 32% year-on-year and subscription devices or subscription-led revenue. Important thing for I wanted again to remind you is that our focus is various subscription line items with the merchant. That is why not only devices, we have started to line item few more subscription line items in the business.
That is why we are converting this line item from subscription, paying merchant of instead of just a device subscription, if you notice. It is definitely key led by that. As you've seen, we crossed a incredible milestone of 10 million quarterly merchant disbursement, loan disbursement in the quarter, and little less than INR 10,000 crores of disbursement. Very happy to see these things driven by technology insights and the brand that we've created over the period. I invite Madhur Deora to share the rest of the business presentation and Bhavesh Gupta to talk about it. We look to take lots of questions from you. Thank you.
Thank you, Vijay. It's our pleasure to welcome you on our earnings call. This is our revenue progression. As you mentioned, we have grown 42% year-on-year. As Vijay pointed out, Oh, sorry. As you pointed out in the earnings release this quarter, we did not record any UPI incentive. This is because the UPI incentive circulars came in January. Last year, they had come in December. While our payments revenue grew 21% on a reported basis, on a like for like basis included, including UPI incentive, this number would have been 34%. I'll talk a little bit more about that later on in the presentation. There were a couple of small impacts on our payments revenue which we have called out in the earnings release. One is that Diwali was earlier this year.
Some of the e-commerce sales happened in Q2 rather than Q3. There was some impact on that. Like Vijay mentioned, we finished all the work that we wanted to do on focusing on profitable GMV. There's a little bit of impact from that as well. Our financial services revenue grew 257% along with growth in disbursement, and now is standing at INR 446 crores of revenue. Vast majority of this is from our loan distribution and collection business. Our financial services revenue now accounts for 22% of our revenue, up from 9% a year ago. This has clearly been a key contributor to our growth and scale. Our commerce and cloud business grew 24% year-on-year to INR 420 crores.
This quarter, the key drivers were credit card and commerce. One thing we did call out is that we had high volume in our events business, which also increased our take rate, and we'll talk a little bit more about that later on. Overall, 42% growth, just over INR 2,000 crores of revenue. We do wanna call out, like we did last quarter as well as in our December meeting, that we do receive some incentives from PIDF and NABARD, which we count as other operating revenue, but it really relates to payments. Go to the next slide, please. This is our progression on contribution margin and EBITDA. Our contribution margin a year ago used to be 31%, and we have improved that to 51%.
There's been a 20-point increase or a huge jump in our contribution margin or our unit economics. Our indirect expenses as a percentage of revenue has gone from 58% to 49%. As you would have noticed, in the last three quarters, this number has been flat at about INR 1,000 crore of quarter. On a year-on-year basis, this has only been up 20%. As a result, as a percent of revenue, this has declined quite meaningfully. The combination of these two has allowed us to become EBITDA breakeven or EBITDA profitable. A year ago, we were negative 27% of revenue. Now we are positive 2% of revenue. I should call out that this is sustainable, and this has been done without sort of cutting down on investments that we believe generate value for us.
This is sustainable going forward. We did achieve operating EBITDA profitability three quarters ahead of the guidance that Vijay had given in his letter in April of 2022. We're quite proud of the discipline that we have built into the business. This is driven by strong revenue growth across businesses, disciplined cost management, and our strong business model, which has a ton of operating leverage. Can you go to the next slide, please? Just double-clicking on the payments business. Our payments revenue on a headline basis, like I mentioned earlier, was 21% year-over-year. Just expanding on the UPI incentive. Including UPI incentive, this number would have been 34% year-over-year. The way this works is that last year we received first three quarters of UPI incentive in Q3, which is a December quarter, and that number was INR 68 crore.
Our estimate is that for the same three quarters this year, our UPI incentive would be INR 130 crores. Just to be clear, this number is only for the first three quarters of this year. Whatever we get for the fourth quarter will be above, over and above this. If we just include this INR 130 crores to compare on a like-for-like basis, this INR 992 crores last year included UPI incentive for the first three quarters. We are including management estimate of this for the first three quarters of this year to our reported number, then we get to about 34% revenue growth in payments. Payments continues to grow revenues quite meaningfully. Like I said, 34% year-on-year.
Despite the fact that we have mentioned earlier that we have cleaned up revenue which was not very profitable for us. Despite doing that, we have been able to grow 34% year-on-year. Just to be clear, we have not recorded any UPI incentive this quarter because the final circulars from UPI came in January. Go to the next slide, please. We talked in the December meeting about our payment business and how we track that. Our payment business generated INR 459 crores of net payment margin. Net payment margin, just to be clear, is our payments revenue minus our payment processing cost. That has two main components. One is payment processing margin, so all the money that we make on processing payments. The second component is the revenue that we make from subscriptions.
On payment processing margin, we had given the guidance that we're currently at 7 to 9 basis points of GMV. We continue to be right within that range in the December quarter. This number is including the pro forma impact of UPI incentive for 1 quarter. Despite inclusion of interchange costs, which I'll talk about in a second. We had given the guidance, and we stick with that, which is that since UPI is growing faster than other instruments and UPI is slightly lower margin, we expect long-term payment processing margin to stabilize at 5 to 7 basis points. Coming to subscription for a second. Subscription makes over INR 100 per month per user. The number of devices has grown to 5.8 million devices now, up 3.8 million.
Roughly number is what we're able to grow this business and massive opportunity ahead of us. It gives us many benefits in terms of merchant monetization, stickiness and merchant industry. The next item I briefly mentioned here, we also get incentives from partner banks, RBI, NABARD. Some of them can be recurring in nature because from a quarter-on-quarter basis, but this is steady revenue that we get every year. On the right-hand side, we have just given a little bit of clarity on net payment margin. On a like-for-like basis, this number went from INR 443 crores last quarter to INR 337 crores this quarter. One of the things that we have done is for our Paytm Postpaid product, we now incur an interchange cost.
Previously, we used to incur a promotion incentive, which used to be in our cashback. You'll notice that our cashback has gone down dramatically, and we have a lot of disclosure of this in our earnings release. At a high level, our cashback has gone down quite dramatically from about INR 190 crores to about INR 90 crores. Whereas we have taken INR 78 crores of interchange costs related to Paytm Postpaid in our net payment margin. While on a like-for-like basis, our net margin would have gone up much more, we are reporting INR 459 crores of net payment margin this quarter. This is the basis on which we will report going forward, including the interchange cost for postpaid.
Including the interchange cost for postpaid, like we have said, we would be at within the 7 to 9 basis points currently. Keep going. I'll turn over to Bhavesh to talk to us about lending.
Thank you, Madhur. Hi, good evening, everyone. Lending again had a wonderful quarter. This is on the back of all the three businesses now coming to some level of maturity. Paytm Postpaid as a business, you can see that now two big things have happened. One piece it is that Paytm Postpaid continues to be the largest funding source or a lending product which is accepted at 17 million merchants, 1.7 crore merchants in the country. We're seeing a very good adoption by merchants who want Paytm Postpaid to be available on their shops, either on an EDC device, payment gateway, or a QR code. We continue to see a very healthy growth. Year-over-year this number looks three digit, 300%+.
QoQ basis, also, we are clearly seeing this business grow very comfortably at about 25%-30% which is shared over the guidance that we have been providing in the last quarter, that we feel very comfortable growing our lending business quarter-on-quarter between 20%-25%. Now we're seeing that growth actually higher than that number at about 30%. Our personal loans, YoY is looking much sharper because we started this business shared before December 2021 quarter. This number obviously look closer to 500% in terms of personal loan. Two interesting things have started to happen in PL. The postpaid, the customers who are taking PL from us, 40% of the disbursement has happened to existing postpaid customers.
This is giving much better portfolio quality comfort to our lending partners, and also is giving a great experience to our consumers who, through largely with couple of clicks, are able to consume this product very conveniently through the Paytm app. We've also started to see almost 50%, 40% of the customers who had taken PL over the last 12 to 18 months and now finished their loan, coming back to take another loan. Hence that portfolio is also becoming very material and the quality of that portfolio is better.
New to PL portfolio continues to be operating between 30%-40% of the disbursement amount in the quarter, which is a very healthy mix, which will make the PL business not only scale very, very well for us, but also will make sure that our profitability for us and credit quality and profitability with our lending partners continues to be better than the plan. Merchant loan is something that we feel very excited now. Obviously last year, through the year, it was impacted by COVID. We saw maybe about two quarters back that once COVID was completely out of the market, merchants were coming back to the normalcy in accepting more payments and hence merchant lending. We are now seeing the acceleration amongst the three businesses highest in the merchant lending product.
We continue to believe that merchant lending product back on the devices growth will continue to scale much healthier. We do see as an opportunity that as our devices penetration keeps increasing, our loan penetration to devices merchant will also keep increasing. It is hardly about 5%, and our total devices in the market have now crossed 5 billion. We do feel very positive that all these three businesses, be it postpaid, personal loans, and merchant loans, should continue to demonstrate very healthy quality of business and profitable products for both lending partners and ourselves in due course of the next many quarters to come. Can we go to the next slide? If you see on the left-hand side, there is the financial services revenue, which now is contributing 22% of the overall revenue for Paytm.
This has really grown very, very incrementally over the last year. This is largely backed by the performance that you've seen in lending business, which is contributing disproportionate portion of this INR 446 crores of lending revenues. The interesting part here is that we continue to see that the number of new borrowers who are coming in quarter-on-quarter is a very comfortable half a million-ish number every month. We are not aggressively chasing this number as a metric. While the overall top of the funnel, as you can understand, we are sitting with 80 million plus monthly connecting users. Of the 80 million monthly connecting users, live to date in the last two years, only 8 million unique borrowers have accessed credit through Paytm platform through our various lending partners.
Just 10% of our entire monthly connecting users thus far have taken any form of credit through the Paytm platform. Another half a million every month are taking incremental credit as new customers on the Paytm platform. It just gives us a very good segue, because we've spoken in the past that a very large portion of our MTU, close to 40%-45% of our MTU, is whitelisted on various loan products with partners. Hence, we feel very confident that while we continue to grow new business through new consumers, and the fact that almost 40%-50% of our existing loan business is coming from existing customers for merchant business, the cumulative effect will continue to give us a 20%-30% growth rate quarter-on-quarter for foreseeable future.
In the, in terms of our portfolio, I think the portfolio is holding up very, very nicely. We continue to see that for all the metrics that we have demonstrated over the last 3 or 4 quarters, there has been 0, any kind of deviation in terms of portfolio deterioration of any kind. The portfolio is performing better than the expected credit losses that our partners have assumed. These numbers for the 3 businesses are lower between 50 basis points to 75 basis points between Paytm Postpaid to personal. I do believe that going into the next year with higher interest rates also in mind, we do not see any kind of indicators to suggest this portfolio quality is going to be any different number year-over-year throughout in this piece.
The last point on the lending side, important to understand, is that our focus on continuously looking at the regulatory landscape and working with our partners to make sure that Paytm is always upholding every regulatory processes that is being laid down, both in terms of the directions coming in from the Reserve Bank of India or any other regulator. The risk appetite of lenders is making our business more solid than ever before. We're committed to make sure that we keep building this business on the four legs of risk, compliance, operational efficiency, and profitability, and continue to scale this business in the manner that you've seen thus far. Can you go to the next slide? Yeah. Madhur back to you.
Thanks, Bhavesh Gupta. This is about our commerce and cloud segment, which did INR 420 crores of revenues this quarter. The main drivers of this were our credit cards and commerce business, which saw quite a decent jump. On the co-branded credit cards, like we have discussed before, which is a part of our commerce and cloud business, that continues to scale particularly well. We have started to give additional disclosure on our credit card business. As of December 2022, we now have 4.5 lakhs activated cards, and we activated 1.5 lakh credit cards this quarter. Overall for this cloud segment, our revenue grew by 15% to INR 235 crores.
On a QoQ basis, there was some impact because our Paytm Cloud business had a particularly strong quarter last quarter, so there was a little bit of impact from that. On a year-on-year basis, this business is performing fine. On enabling commerce, our GMV was INR 2,300 crores. Our revenue was INR 185 crores, resulting in a take rate of 8%. We did have high volume in our events business, and we have clarified in the earnings release, and we're happy to take in Q&A, that there are certain events in which we provide full stack services, so we have high take rates but also high direct costs. On a steady-state basis, our take rate should be roughly 6%.
In Q3 and Q4, we do see a little bit of a jump in the events business, including the full stack events. Can we go to the next slide, please? Finally, we just wanted to call out a number of growth drivers in our business. 1 is that obviously, as all of you experience every day, while India digital payments has grown quite a lot, it is still in very early days. You know, growth in UPI, cards, EMI-led payments, all of this is yet to reach the masses. We think that just from a user standpoint, the loan usage standpoint, there's massive growth. We're going to be launching UPI Lite soon, which allows instant, multiple small value UPI payments, which we think will lead to increase in adoption of digital payments.
We'll also be launching credit card on UPI, which enables users to link their RuPay and other credit cards to UPI. On the merchant side, which is like Vijay pointed out, really where a lot of revenue can be made, we think there's a potential of INR 10 crore merchants and more than INR 50 crore payment customers in the near term. Really a very large opportunity to go after. We are on the lending side, working on integrating with large NBFC and banks to leverage the full potential of small digital credit on the Paytm platform. Just in the way we have been able to scale it to INR 10,000 crores of quarter, we think that there's a long way to go.
We have put a bunch of disclosure in our earnings release about how we are working with RBI regarding both Paytm Payments Bank and on Paytm Payments Services Limited. One of the things that we're quite proud of is that we have been able to do all of this and increase our focus on building scale, but with a huge amount of focus on operational risk and compliance. We think that as we go forward, like Vijay mentioned earlier, this is gonna be quite important and quite a differentiator, both in terms of customer experience and in terms of what regulators expect from us. I think that's all we had. I'll hand it back to the moderator, and we can do Q&A.
Thanks, Madhur. We will now proceed to Q&A. Please 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. With that, we move to the first question of the session, which will be from Mr. Manish Adukia of Goldman Sachs.
Yeah. Thanks, Keshav. Hi, good evening. Thank you for taking my questions. Firstly, congratulations on reaching the milestone of operational profitability in the quarter. My first question actually relates to that. So within the shareholder letter, you mentioned that the next milestone you're looking for is free cashflow profitability. Now, with the UPI reimbursement coming through in the next quarter and your continued traction in the lending business, is it safe to say that you should get to positive free cash flows starting the March quarter itself? Related to that, where do we see margins go from here? I mean, are the double-digit EBITDA margins possible by end of fiscal 2024? That's my first question. I'll wait for the second question.
Thank you, Manish. I just wanna tell you that the Q4 UPI incentive will be one-off. We will explicitly call it out, it is one-off. Leaving that apart, we will not be free cash flow generative. I mean, understand what I'm trying to tell you here is that one-off number, because it is coming in Q4. Remember the number INR 130 crore that we are quoting is for three quarters. Fourth quarter number will be topped up on top of it. Still that fourth quarter number, wherever it comes, we will call it extraordinary one-time line item. Because I'm calling it one-time line item, I'm not calling it free cash flow generative. While technically with that, adding that, yes, it could be free cash flow generative for that quarter.
Again, next quarter because it won't be there, we don't know what to say. We would rather like to say free cash flow generative on the quarter when we are consistently sure of this. For example, like EBITDA profitability that we have done operatingly, we will continue to increase the EBITDA profitability. Could it go two digit? In what timeline? I don't know. Yes, it could go two digits for sure. Like I said, this is a sustained EBITDA growth that we are seeking from here on.
Yeah.
Sure.
Completely agree with that, Manish. I think it's just for us it's important that the timing of UPI payments will vary depending on when government releases the circular. The way we see it is a bit of a normalized number. While it is correct that we expect a chunky number to hit our reported numbers in Q4, we would not consider that as sort of normalized, and as a result, if that results in free cash flow breakeven, we would not consider that as normalized free cash flow breakeven or a milestone in that journey. On the second part of your question, I don't wanna give specific quarters or specific guidance, but we did wanna call out that nearly everything that we're doing is very sustainable.
We are, we have, as you know, been investing in growth alongside moving to profitability, so we don't see a challenge with some of these trends continuing, where we can continue to improve our revenue and our contribution profit dollars, while improving and having that result in increased profitability.
Thank you so much for that. My second question is on regulation. Thank you again for providing the detailed update in the press release. Would you be able to give us any sense on the timelines? I mean, the Paytm Payments Bank, it's now obviously lasted longer than your initial expectations. You had some back and forth with the RBI there, based on the press release. Can you give us a sense of how long it might take? Like a quarter, a couple of quarters, longer? Any color would be helpful.
RBI decisions are RBI decisions. We don't have control over them. Based on what we've been interacting, the day is not very far.
Right. Can I ask a follow-up? I mean, have you had to make any kind of meaningful operational changes as result this ban could have any kind of business impact?
That's a very good question. Answer is no. RBI actually called out that we went through all kind of different technology system or let's say commercial system, et cetera. In the end, there was no incremental dramatic change that we had to make or anything that had an impact on our share value.
Sure. Thank you so much. That's all I have for now. I'll jump back in the queue.
Thank you, Manish.
Thanks, Manish. The next question will be from Mr. Sachin Salgaonkar of Bank of America. Sachin, you can go ahead.
Hi, and thank you for the opportunity, and congrats for a great set of numbers. I have three questions. First question is, you know, when we look at payment services to consumers, it is down on a QoQ basis. I do understand, you know, your comments, but just wanted to understand, you know, thought of going ahead. You know, how should we look at, will there be incremental growth or, you know, we do see a bit of a softness in the near term?
We see growth. We were removing the bad blood.
Great. Second is, you know, Vijay, on a comment what you made about, you know, the cleanup with merchants. You know, what kind of an impact... There was obviously a statement at the end by Madhur saying that, you know, the opportunity is huge in terms of 10 million merchants. Possible to help us with a bit of your plan in terms of merchants. You know, what kind of merchant base are you seeing, and what kind of focus of merchants is what you guys are having going ahead?
Market, there was a merchants where the, let's say, the rates that were provided were special case revenue rate. For example, like you go to issuer bank and then you generalize the commercial base on that. Over the period, those rates were changed, but the customers rates did not change. They were net revenue generating for us, net profit generating for us. We were extremely critical of accounts that were not profit generating for us. We were clear in the market that none of our condition, who is a private, can even afford to take these kind of costs. We were clear about it that take it or leave it, and we left many of those merchants.
It was led by clean up of quality revenue that contributes towards bottom line and growth.
Sachin, if I may add, just the filter that we use is that the merchant should be profitable. With the only exception where we see immediate upsell opportunities, right? For example, a paper QR merchant, historically was not profitable. Now, with UPI inside, they are profitable as well, actually. We also see upsell opportunities there, which is devices and merchant lending and so on, right? For example, certain online merchants you would not see, for example, lending upside. Those businesses need to be profitable for us because we build technology, we help them with routing, we help them aggregate different types of payment instruments. We should be able to make margin on it. That discipline has percolated to every single business team.
As a result, we have been able to improve our net payment margin. There has been a marginal impact on revenue. On a year-on-year basis, we're still growing very significantly. I think we quite like the trade-off where our revenue is up 34% like-for-like and our net payment margin is up 120% like-for-like. I think that builds and brings a lot of great discipline in the business. That's the right way of building a business.
Go ahead.
Thanks, Madhur. Last question obviously, you know, is on the back of, you know, the adjusted EBITDA breakeven. Clearly, you know, obviously you guys are seeing sustainability of this. On the back of it, I guess the bar goes higher, right? You know, should we see some kind of an incremental new guidance coming from you guys in terms of either a net income or a reported EBITDA breakeven? Or to that matter, even a, you know, when could we see free cash flow breakeven? I'm asking free cash flow because I presume there's a bit of a device CapEx which is going to increase going ahead. Any thoughts, any comments would be helpful.
Thanks, Sachin. We're not giving any incremental guideline on free cash flow, but we are definitely making sure that we have sustained and growing profitability. I also want to remind you that we would have lots of investments coming up and in growth and market opportunity. You've seen it that we never, ever compromise. Important thing is disciplined growth in profitability, disciplined contribution in growth and marketing. It's an important thing that we are saying that our profitability will continue to grow and consistently along with the investments that we are looking at. As far as the timeline for free cash flow generation is concerned, we are not setting it up. We believe that the money requirement for CapEx is not very, very large. It is very much generatable within the current operating business that we have, like we have discussed in December month.
Perfect. Thanks, Vijay, and all the best for future.
Thank you. Thanks.
Thanks, Sachin. The next question will be from Mr. Saurabh Kumar of J.P. Morgan.
Hi, guys. Congratulations on this EBITDA breakeven. I just have two questions. First is on this cash flow again. Could you reconcile this INR 9,200 crore cash balance to INR 9,000 crores in December? How much was the CapEx and how much went into buyback? Where did this INR 200 crores go?
We have in the last quarter we had just under INR 200 crores of CapEx, Saurabh. We do earn interest income as well. We do earn about INR 100 crores of interest income every quarter. We have actually given disclosure on how much buyback we had done until December. The number was INR 68 crores. I should add at this point that as of Friday, we had completed INR 796 crores of buyback in total. Which was about of the maximum buyback amount that
Okay. Okay, I understand. 200 crores of CapEx and 100 crores of... Okay, I understand. The second is essentially on the loan syndication. Have you still seen the incentive income yet flow from banks, Bhavesh, or
Yeah. No. We don't do syndications, Saurabh, as you know. We do distribution.
Sorry. Sorry.
Yeah.
Distribution.
Yeah.
Okay.
We do distribution. Yeah, we do see a decent amount of collections revenue which come in. As we had explained last year or last time also, that the collection revenue comes for a book that we originated, let's say one year back, right? Because personal loans' average tenures are ranging between 14, 15 months. The incentive is coming for the business that we generated 14, 15 months back. 14, 15 months back, obviously business was one-third or one-fourth, depending on the business you look at or the size. The collection incentive in terms of rupee value in today's term, looks small. Yes, in percentage term of that year book, the number is pretty material. Yes, we are getting very healthy collection incentive, but rupee value, the number is small because it is of last year business.
Would you be able to quantify that? Like percentage of-
We have said in this presentation also, collection incentive is ranging between 0.5%-1.5%, depending upon the business that you're looking at.
Okay.
Postpaid is possibly between 5 to 0.75.
Okay.
That's the business closer to 1.5.
Okay. Just this last question, you know, is on this unsustainability of this indirect cost. You've not grown indirects for three quarters now and your marketing expense to revenue has kind of fallen to 6%. How should we think about this indirect cost going ahead? Any color you can provide will be great.
I think, as we said before, I think we have, prior to 2 quarters ago, we had done a significant ramp-up of indirect expenses in 3 main areas. One was technology, the second is sales, and the third is marketing. We had done that even as we were increasing contribution margin and revenues. You're right to notice that over the last 3 quarters we have kept indirect expenses flat in absolute terms and in percentage terms, it has gone down by 9 points. I think, given how well our monetization engines are working, if there are areas where, whether it's on sales employees or on marketing, where we could make slightly incremental expenses, we would do that.
It's not like we are sort of internally managing this number to, "Hey, we have to cap it to INR 1,000 crore or something," anything of that sort. Where we do see investment opportunities, we do that. You would have seen that within this INR 1,000 crore number, people cost has gone up, largely driven by sales employees and in some cases, technology folks. We do make those choices. As monetization is kicking in, we might increase this number over the next few quarters, but not at the expense of increasing profitability and free cash flow. Frankly, given how well monetization is working, we don't have to make those sort of tough choices, if you would.
Okay. Got it. Thank you.
We do also... I should also add that, like all companies in February, sorry, April of every year, we also have appraisals. That also has an impact on employee expenses. That's one point from me.
Okay. Just one follow-up. Of the employee, INR 300 crores is the discretionary that cost of building the platform, a growth, your growth cost. The remaining INR 700 crores is basically just the maintenance cost of this whole business, right? That's the way one should think about it.
No, no. We've given making cost and disbursement costs. Sales, sales executives are one cost. Second cost is people who make it. The appraisal happens of the people who make it.
Okay. Okay. Got it. Thanks for that.
Yeah.
Thanks, Saurabh. The next in queue will be Rahul Jain from Dolat Capital. Rahul, can you unmute your line?
Yes. Hi. Thanks for the opportunity. I just have a couple of questions. Firstly, if I look at our promotional cashback, even on an adjusted basis for the INR 78 crore that you mentioned, it's kind of down INR 30-40 crore on a QoQ basis, and it's not significantly higher even on a YoY basis. We've been adding our number of MTUs quite well, even on a QoQ and YoY basis. I understand a very large component here could have come from lending and devices use cases. Where we are and how we are adding more and more MTUs with cutting down on both on promotional and marketing spend.
Rahul, these MTU additions, as you very well have seen, are not driven by cashback. Instead, they are driven by good marketing that is led by referral marketing and great product initiatives where customer who have downloaded the app, we are converting them into better way than previous in first transaction. We internally have a first transaction hawk-eye view of the customer and then retain its technologies. It is product and technology driven by referral as a product initiative, not by the marketing initiative. That said, like I've always said it, we will not shy away from investing in consumer growth at a time when we see that we have outlier profit opportunities coming up. Right now it is product-led.
Right. Does that mean our annual transacting user is still a very high number from where this retention optimization is being done, and if you could share that number?
Rahul, we are very interested. I wanna tell you that we've looked at UPI because this was the war of UPI effectively between different companies. Somebody chose consumer P2P, somebody chose P2M, the merchant payment. We chose merchant business. If you notice, our merchant business revenues in the industry of payments is particularly higher than every other peer, all because we put attention there. In fact, our acquiring side market share, which NPCI does not yet declare, once they start declaring, you will see how well we are capitalized there over other UPI players, also standalone UPI players or other payment aggregators. Idea is that we have deliberately built it led by product and technology in consumer side, and acquiring side is what our revenue and business opportunity will be. We'll do it, consumer side also.
Rahul, just to clarify, we have not slashed cashback or anything of that sort. Our contribution margin continues to improve. We do have room if we wanted to increase cashback, but there just hasn't been a need, right? Like Vijay said, this is very product led. Our learning is that customers long-term stay with you for product or, the product is improving, they just stay with you. We are roughly doing about 3 basis points, just under 3 basis points of GMV as cashback.
A chunk of that is referral, which is really targeted towards new users, and the rest of it is just, you know, related to just transactions that users do, where we have recently good take rates and we might be giving a little bit of that back to users. That's how we manage our business. We have not sort of slashed cashback or anything of that sort.
Right. Right. Just, one more, if I can. Basically, we've been highlighting this, new, net payment margin, and we have given a band. While we see the way we have progressed, we have improved on this metric very, very significantly. The kind of net margin that we are making right now, probably we might not have made in the historical basis anytime in the past. What make you think that this will get optimized to this level and rather go down eventually, just because of the mix? I think the number of use cases and the kind of, the value or GMV individual transaction can bring, it has such a wide variety of possibilities, then it would be never be possible for anybody to capture this number precisely.
why we want to share this number and think this can cool down?
I think, when you adjust for UPI mix, which we have clarified, and you mentioned in your question on the mix effect, we think that this is a reasonably good indication of how much money are we able to make on each transaction, right? You're right, that certain transactions may make us lower money. That could depend on the type of merchant, type of customer. It could depend on the type of instrument. So on a...
This gives us a reasonably good sense of if a customer comes on our app versus if we are on the merchant app or in the merchant's shop, and what is the, what is the value that we are adding for the technology that we bring or for the consumer access that we bring to our merchants or the convenience that we bring to the merchants to the consumers. We think that's a reasonably good proxy for that. While UPI mix, and we have mentioned that UPI we expect to be 3 or 4 basis points, that increasing would bring this down number slightly. We think this is a reasonably good number to focus on. I think the.
Part of the reason to bring that out was to clarify that payments actually does make money, on an aggregate basis on GMV. Because I think there was some misunderstanding, at least among some folks, that, "Oh, payments, everything has to be at zero." We just wanted to clarify that that is not the case, and that is certainly not the trend that we see. In fact, over the last few quarters, we have seen this number go up rather than down, right? We see continued momentum in this number.
Great. That's it from my side. Thank you.
Mm-hmm.
Thanks, Rahul. The next question we'll take from is Mr. Sameer Bhise from JM Financial. Sameer, you can unmute your line.
Yeah. Hi. Thanks, congrats on the good numbers. On the gross margin thing, do we expect that this is the new normal?
Sorry, on which number?
On the gross profit margin.
I'm sorry. What are you referring to exactly as gross profit margin? Are you referring to net payment margins, Sameer?
Basically the contribution profit, which is currently tracking 50% plus.
Yeah, look, one-off this number. We are ahead of our internal plans and the plans that we have sort of shared, on the basis of which we had shared breakeven guidance. There are no one-offs in this number, so we assume, well, we should assume that we would be at roughly these levels with potential upside from, you know, growth of lending faster than payments and those sorts of things. There are no one-offs in this number. Yes, this is a rebased margin number going forward.
And-
Sure, and I should add that from quarter and quarter, we may have fluctuations. On a long-term basis, we see this as steady or growing.
Yeah. Secondly, on the number of employees, I believe the material increase has come from addition of sales force on the employee cost side. We probably are at rough, I mean, how much more to go in terms of on-ground sales force additions?
Bhavesh, do you wanna take that?
Sameer, the opportunity is fairly decently large for us. As Madhur in the beginning of the conversation said that we added about 3 quarters back a lot of people. Today, when we see the opportunity in the future, we do believe that we will add not as much as we ordered 3 quarters back, but we'll keep adding a few more. What will the exact number, we haven't really opened time, but yes, there is gonna be addition, but it's not gonna be a materially large addition. It will be an addition which will be positive in terms of getting us more devices per incremental sales force than what we've done in the past.
Yeah, because we are already probably tracking roughly 30,000 kind of sales, I mean, on-ground sales team, which is why. Which is sizable, so.
Yeah. It's not actually that large a number. Yeah, it's closer to that number. The important part here is that when we look at the opportunity, as Vijay mentioned, of INR 10 crore merchant as an opportunity, and we're sitting with INR 3 crore merchants today, we have a very, very long way to go. We are currently placed in about 400 to 550 cities and towns, and our belief here is that over the next 2, 3 years, we would like ourselves to be in maybe 1,000 towns. This penetration will be a bit more people-led. Yeah, we'll calibrate it as we see the growth, but it'll not be on the back of doing loss-making growth, but it'll be on the back of making profitable growth.
Sameer, just, if I could just add one thing is, the work that these sales employees do, has very good payback period, especially when they're going and putting Soundboxes and devices and so on. So, the unit economics on that works really well. It's just a question of. Do you do upfront investment like we have done, or do you sort of stagger it over time? Right. We have such high conviction that we have done the upfront investment. It goes a little bit back to the question that Sachin was also asking, is that, you know, we have sort of gone from 2 million devices to 5.8 million devices. For that sort of growth, you do end up front-ending the investments a little bit. And that's what we have done.
Yeah. The payment services to merchant fees is clocking like 9% YoY. I'm sure with the kind of device that you've added in last 7-12 months, this number starts, I think. How do you see this?
Yeah. I think, Sameer, Vijay tried to answer that question earlier in that part, that two things have happened. One piece is last year we were clocking in certain GMV and hence certain gross revenues of merchants which are either not profitable or we were not very comfortable purely from a risk perspective. We've done a lot of cleanup over the last two quarters. I think the cleanup started.
In 1Q. Okay.
Yeah. We moved in quarter two, and then we did some residual impact in quarter three.
There is some impact this time around as well.
Yeah. Future going forward, I think when you get into the next year, we do see that the cleanup that we had to do, we have done, and we will have some more of that coming back from those merchants who on commercial basis had been left off, because we do know our product is arguably the best in the country, so it will come back to us. More importantly is that our acquisition machinery, as you rightly pointed out, is going to continue to churn a lot more GMV than what we've been in the past. You will see growth, coming into this factor, and this will be more profitable growth than we've seen in the past.
Just to add to that, there are two other factors when you're looking at a YoY comparison, Sameer. I apologize if I wasn't clear earlier. One is obviously UPI incentive. In December quarter last year, we had UPI incentive. In this December quarter, in the number that you are referring to for 9% YoY.
Yeah, it doesn't include.
That's one difference. The second is because Diwali was a bit later last year.
Q was.
Some of our online merchants have sales in October and early November, whereas this time our, most of our merchants had their big sales in September and a few smaller sales in October. That, so some of that revenue got moved to Q2 this year versus being in Q3 last year.
Fair enough. This is great. thank you and all the best.
Thank you, Sameer. Thanks for your questions.
Thanks, Sameer. The next in queue would be Gaurav Kochar from Mirae Asset. Hi, Gaurav. You can unmute your line.
Yeah. Hi. Am I audible?
Yeah. Yeah.
Sorry. Yeah. Many congratulations to the team on achieving the operating profitability well ahead of guidance. Questions, firstly on the lending side. While you've disclosed the penetration level in merchant loans, as a percentage of device merchants, a similar like to like on the consumer side, if you can call out what is the total, let's say user base of BNPL product, which is your Paytm Postpaid. Any, I mean, if you can give the number of users who have subscribed to Paytm Postpaid and maybe PL as a percentage of that, you know, PL disbursed in the last 12 months as a percentage of that, how would that number be? Like you mentioned, repeat rate of 45% in case of merchant loans.
Given that this product is also more than 12 months old now, what is the repeat rate in case of PL? Going ahead, in terms of this sort of penetration, PL as a percentage of your BNPL customer base, where do you see it tracking? That would be first on the lending side. I have another question, so maybe I'll ask it later.
Sure, Gaurav. Gaurav, we have said 8.1 million users have gone ahead and taken any form of credit. Out of 8.1 million, broadly, I would say closer to 7 million are people who've taken BNPL credit. That number we do see adding about 400,000 new users every month. Right? That is there and hence the percentage of MTU still there is this is about less than 10%. In terms of lenders' whitelist, which is closer to about 40 million, there is a very, very long way to go. There is obviously no holding us back in growing this business at 400,000-500,000 new users on BNPL every single month.
In terms of the personal loan, in terms of penetration, that number will be, I don't have an exact number, but I'll give you a range bound. That number is fairly small against the 7 million users who have BNPL. The number of users who have been pre-approved for a personal loan by lenders will be close to about 2 million. Of which I think 300-400 users have taken. Every month we see about 340,000 users take PL from the BNPL pool. Again, that opportunity continues to be very, very large.
Yeah.
The third piece of question is in terms of PL to existing PL. I did mention early in the conversation that they're closer to about 15%-20% today. As the book continues to keep maturing, this ratio will stabilize at about 40%-45% of existing PL customers taking another PL over the next 12-18 months. I don't think that the BNPL customers taking PL, that ratio is 40% of PL coming from existing BNPL customers. This ratio is going to change. The stable use case will be about 40% of PL coming from BNPL, another maybe 40% coming from existing PL, and the remaining coming from new to PL for the first time.
There is a very decent runway ahead of us for many, many years to continue to penetrate into the current MTU. Obviously our MTU is also growing fairly at a good clip.
Great. Great. Sure. Just to clarify, the first form of credit that we give to the user is a Postpaid or it's a you directly give fee?
It depends upon the risk, the lender's risk appetite. There are different funnels. The user can opt for BNPL or personal loan or credit card or merchant loan. They're different white lists. There is an upsell opportunity from BNPL to a PL. It's not to say that you can't take directly a PL. Obviously, the risk policy of lenders are more tougher if you're coming absolutely new to personal loan, whereas the risk policy for somebody who's upgrading from BNPL after repaying six months is a bit more lenient because they have seen the risk play out for that user for the last six months.
Got it. Sure. Sure. Thanks. Second question is on the credit card side. We've added about 1.5 lakh cards in this quarter. Just wanted to understand, was this a festive quarter and hence the run rate is high? Or you believe incrementally we can add 50,000 cards every month or 1.5 lakh for the quarter kind of run rate in the near future? Also if you can give some color around what % of the total income on the cloud business would be coming from credit card business. Going ahead, let's say number of cards, what would be the proportion of this in the cloud business?
Let me take the cards question, in some detail and then hand it over back to Madhur. The cards business, I don't think our business is linked to any kind of festivity because we don't have an offline distribution of the card business. It's purely playing on the digital journeys that customers are whitelisted by the issuers and they consume it. Yes, the short answer is that the run rate of 50,000 is not issued cards, it is activated cards, because we don't track issued cards. Our belief here is that we only want our partners to look at where the cards are getting activated, on which they can get spends and we can make money.
50,000 is a run rate that we've been doing for the last couple of months, and I believe it is only gonna become better. I said in my conversation in the past that we aspire to look at about 1 million cards to be issued over the next 12-18 months, and we're sticking to the guidelines, Madhur?
Yeah. Gaurav, credit cards as a percentage of cloud revenue would be about 20%-25%. We do expect that to grow, given that credit cards as a business is expected to grow faster, given the very low penetration that we have.
All right. Thanks. Just last question, if I can squeeze in.
Sure.
On the employee, sales force, we've added about 5,000 on an average. There's been a 5,000 employee uptick in this quarter. I understand this would be largely towards the merchant business acquisition that has been so successfully doing. Just wanted to understand, Hello, am I audible?
Yeah. You, we lost you for a second, Gaurav. Yeah, you can continue please.
Okay. Okay. Sorry. Sorry. In terms of the device run rate, we've been adding 300,000 every month or about 1 million every quarter. Going forward, given that the headcount has increased, can we expect this run rate to improve going ahead?
The answer is yes. We've already seen metric for January become better over December. We do believe that this number is going to become better than what we reported in the past.
All right. Okay. That's it from my side. Thanks, and all the very best.
Thanks, Gaurav. We have time to take one more question, and the last question of the session will be from Mr. Manish Shukla of Axis Capital.
Good evening, and thank you for the opportunity. First on the sales force of about 29,000, how many would be off-role?
Manish, we don't have off-role as a concept in sales force. This team is on the roles of either our subsidiary or directly mostly .
The cost that you put, it fully accounts for this entire 29,000 people?
We There could be attrition in the front end. They may not have spent the full time. You can't, the guy may not be earning 4 months' salary, et cetera. As you can imagine, people who generally spend more than 30-45 days, they continue to remain in the system a long period of time on which we spend the entire salary and incentive. Yes, we will pay to these people even if they're staying for 1 day.
Okay. Sure. The next question is the interchange for postpaid that you reported, that roughly works out about 1.5% of the postpaid loans for the quarter. You think that's broadly the right run rate to look at it going forward as an exponential?
Yeah. So this is, yeah. So this is. So this used to be when we started the business maybe two years back, we had to incentivize merchants and users to either take or accept postpaid. This number used to be higher, more closer to 1.5%, 3%. We've seen over the last two years the number has now fallen to 1.5%. As per the new digital lending guidelines, wherein this particular product has to be disbursed directly from merchants through payment aggregators, hence it is becoming interchange. We do see that over a period of time with the scale that we've achieved, hopefully this number should settle down more closer to where interchanges are for credit cards of low-value credit cards.
At that point in time, 1.5 is seemingly optimum the way our lending partner look at. Our endeavor is to make sure this number can fall down from 1.5% to maybe closer to 1% or 1.2% over a longer period of time.
Okay, thanks. If I were to look at payment processing charges excluding interchange, that works out to roughly about 55% of gross payment revenues. Is there scope to optimize this further? Because obviously this has come down quite drastically over the last couple of years.
Manish, that's not quite how we look at the business. I would discourage you from looking at that as a metric because, you know, by that metric, you wouldn't do credit card business, for example, right? In credit card, you can charge a merchant, let's say 1.5, 1.7, 1.8, but
A large chunk of that becomes payment processing costs. You still make a chunky margin. You still might make 10, 15, 20 basis points on that GMV, which is absolutely worthwhile for us to do. We don't really sort of manage this number to say, "Okay, is it 55% or 60% or 50%?" I wouldn't quite look at it that, like that. I would look at it in the way that we have explained it in December and earlier today, which is, what is that percentage of GMV overall, as in our net payment margin, which is revenue minus processing costs, what is that as a percentage of GMV? That, for that we are selling 9 BPS, and over time, because of mix effect, this might go down slightly.
Okay, thanks. The last question. If I look at the growth in financial services revenue, that is less than the growth in value of the loans disbursed. If I were to calculate, take that as financial services revenue to loans disbursed, that has been trending down. What is causing that?
Revenue is of previous years' loans and disbursement revenue is of this year's loans. It's a combination of incentive of collection plus disbursement. Incentive of collection is of the previous year, which is 400% less, so your number would look small.
Next year
Should one look at it as 6-month lag or 12-month lag? What is the right way to look?
The length of credit, we are talking average length, as you are reading in different loan line items, are 12, 14 month.
All right. Understood. Thank you for answering my questions. Thank you.
Thanks, Manish. With that, we come to an end of the Q&A session. A reminder that the presentation discussed today, a replay of this earnings call and the transcript will be made available on the company website. Thank you for joining.
Thank you. Thank you so much, everybody, for joining, and it was great to have detailed discussion. We are available any which ways for any other specific questions that you have. Thank you. Have a good day. Bye.
Thank you very much. Thanks, everyone.
Bye.