A very warm welcome, everyone. Thank you for joining our earnings call for the quarter ended September 30, 2026. As always, we are going to do this earnings call with management videos switched on. We welcome attendees to ask the question with their videos on or off as they prefer. To ask the question, you can raise your hand through your Zoom dashboard. To ensure a seamless flow, participants will be promoted as panelists in advance. Today, from Paytm's management, we have with us Mr. Vijay Shekhar Sharma, Founder and CEO, Mr. Madhur Deora, President and Group CFO, and Mr. Anuj Mittal, Senior Vice President, Investor Relations. In today's call, some statements made may be forward-looking in nature. Actual events may differ materially from those anticipated in such forward-looking statements. This earnings call is scheduled for 45 minutes.
A replay of the call and transcript will be made available on the company's IR website subsequently. I would now like to invite our Founder and CEO, Mr. Vijay Shekhar Sharma, to share his opening remarks. Over to you, Vijay.
Yeah. Hi. Thank you. Good afternoon, everyone, for joining us. I think this was an interesting quarter. We've clearly come out of this question whether Paytm can make profit or not, and it's very clear the business model is now compounding from where we were, let's say, last year or a year before. It's fundamentally acquire customers from payment and cross-sell financial services. Obviously, the biggest financial services that India needs is credit. So helping small merchants, which are our primary business drivers, is our primary method of revenue model. I created, actually, a business presentation of what we believe that is our business. So I'll start this time after a long time, giving you a business presentation that this is how I think. And the intention is that how we work, and this was intended because we were going some of the international businesses.
So I started to make and think about this is how we believe that Paytm should be looked at. Obviously, small business is our forte and small business is our game, so this is our purpose. And we build a financial system for world small businesses, start from India, take them to rest of the world. And we champion the shop on the street, the family business, the growing SME, everyone. And we solve the small business problem beyond the payments.
Voice is low, I think.
Is it? You guys can hear me? All right. I hope you guys can hear me, because I can see some of you, so just thumbs up, if you can hear me, the audience in the call. I hope you can hear me. All right then. Thank you. As you know, we go beyond the payment device on the counter because we believe that this is the starting of a journey. We acquire using payment. Credit is what earns our money. Insurance and wealth come deepen and AI binds. The question of what would you do AI probably hits inside this message, where every relationship starts with payment. We go and acquire small, medium, large businesses. Payment flow underwrites credit.
This is the critical thing that you will see in our business that we start from small payments to the large, and depending on different states, we unlock the next state the merchant is. Then we protect the owner, family, team, and shop. This is the expansion on our insurance bucket. Then idle cash earns. This is how we help them. Obviously, this loan or mutual fund distribution comes here. This is something that we believe that we are building as our AI stack for small merchants. If you read it is something that all small businesses need to get capabilities, which our big companies have it, and they don't have somebody to operate it, so the AI operates on their behalf. So we have started making some of these things and some of the revenue starts showing up.
We believe this is the future upside beyond financial services for our business. It'll take time, but I want to be sure that this is something that we capture in our business model long-term. This is really important for us that all of our functions, whether it is workflow or financial services, as you know, is AI first, including the very fact that we code generate and so on. So whether it is onboarding or customer—
Voice is a little bit scratchy. Voice is a little bit scratchy.
—can I ask Manish and Sachin, you guys are in the call, so are you able to hear us normally? Just thumbs up.
Yeah. It's a bit feeble.
We can hear you. Yeah. Your voice is a bit feeble.
Oh. Is it better now?
Not really.
Okay. We'll disconnect this, and we'll connect on our laptop. I'm sure you can hear me better now. I'm assuming.
Much better. Thank you.
Yeah. Okay. I hope you can hear me better now. All right. Thank you. AI first, the brain works. Well, the point is that all of our business runs, I can't say it one line item or other, and it is every line item works with AI first. The best part is that even our sales team works. So who's the correct merchant to acquire, where the high yield is or important to retain. This is decided by a machine, not just individuals. This is important. Paytm changed the cost of serving a small business to a profit.
That is what we probably have been out there proving, that small businesses, serving them can be profitable, and then as you know it. Here it is. It starts from payment, credit, underwrite, and money flows into partner, pricing is visible, AI first, and then we want to take it to the rest of the world. That's it. With this, we will start inviting our friends on the questions. Yep.
Thanks, Vijay. We will start a Q&A now. The first question is from Sachin Salgaonkar from Bank of America, followed by Manish Adukia from Goldman Sachs. Sachin, you may please go ahead with your question.
Thanks, Anandita. Congrats, management, on another good set of numbers. I have three questions. First question, wanted to follow up on the MDR implementation on UPI. You guys did mention in the shareholder letter 2.5 basis points improvement on payment processing margin, let's say, over a period of two to three quarters. So two sub-questions out there. Number one, how do you think this will flow through to EBITDA? Number two, from an opportunity point of view, are you guys looking to incrementally scale, let's say, at the consumer side or the merchant side? Because now, perhaps, the incremental LTV by CAC is getting better. In the past, I remember, Madhur, you sounded a bit more cautious on competition picking up. So any incremental comments would be helpful from competition point of view also.
Second part, you have to give us opportunity because I was unlocking the Madhur laptop. You said before competition picks up, what was the question?
Oh, sorry. Let me repeat it. First, Vijay, 2.5 basis point of payment processing margin, how do we think this will flow through to EBITDA margin? Do we see a full flow through EBITDA margin? Or do we see some incremental investments because you will be now targeting more consumers or merchants? General thoughts on competition, especially in this space with monetization picking up.
Yeah. So Sachin, Madhur, you and I need to switch off the audio.
Sure. That's it. It's done.
Just unmute when we want to start. Okay. Sachin, the answer is that this is a bottom-line accretive number, and it is an upside. The plan for consumer acquisition does not change in detail because of this. We remain committed to acquire more number of consumers. Consumer market share is Paytm's obligation to win, and I remain committed, and I'm surprised that we unlocked some shocking, surprising things that were restricting our growth. They were not just internal, they were external, if you will. I'm very happy to say this, that we are going to go all-in on market share, and we call it as a primary KPI for my team. It is. It is not dependent on MDR or not. Because in our business model, MDR is not factored in absolutely, completely.
We just tried, in fact, looking at the most conservative method, and then we found out 2.5 basis points is something that we can make. Remember, there is more revenue in this business because there is a platform fee, typically consumer apps are putting up in the market, and there is acquiring side platform fee that exists when large merchants, which have very large negotiating powers, they put a very low margin, then companies put platform fee even in the acquiring side. I'm going to say that the basis point that we've quoted does not factor in any potential additional revenue if any platform side fees could have been added. This is the logical, today's best-case scenario number that we know of. In my opinion, this is bottom line accretive, because this is not basis of our consumer acquisition.
We will still stay same aggressive or less, as the current number is, where we will acquire more number of consumers. Yes, consumer acquisition is a very positive number for us. I rather want to tell you this, that the number of features, the capabilities, the way we are acquiring customers, it is something which we are very happy about and very positive about.
Got it. Just a quick follow-up. When I do a quick math on FY 2028 at a 2.5% margin, it does translate into incremental close to INR 900 crore in terms of incremental EBITDA. Is the math ballpark correct?
Yeah. On our GMV, which is INR 28 lakh crore at a current scale, 2.5 basis points would give you something slightly more than INR 700 crore. So if you're looking at FY 2028 number, that sounds ballpark right. We obviously do expect to grow GMV faster than market, both on consumer and merchant side, so hopefully there's some upside there as well.
Got it. Very clear. Second question is, on what you mentioned as you're looking to offer an AI platform to enterprise merchants. And basis Vijay's opening remark, I guess the focus is more towards smaller merchants. Should we consider the equivalent of a Tally in an AI world? It would be great to get some color. Are you thinking about this as a subscription model? Who's your target base? What kind of monetization could we expect?
So I believe, Sachin, subscription plus transaction fee, one of the or two of the both will be applicable. Marketing is a very simple method, and we have started acquiring customers where we have put the platform fee. We are working with Meta and Google, actually rather Meta, where we are helping a platform fee monthly, and then we get some percentage of spend also. All these models are showing up. You can factor in based on a certain percentage of our customer who are glass door merchants. This is how we look at it. We'll be able to acquire, or we will be able to sell some or other AI service. Yes, it is for small businesses. For large businesses, we have something more brewing up. Hopefully, we announce it after some time. But right now, we are focused on creating agents for small businesses.
Got it. Logically, monetization should start picking up in six to nine months from now?
Oh, yeah. One year, which is three months have already passed, so nine months plus three equal to one year. Yeah.
Got it. Last question, just wanted to understand how should we think about the mix between DLG and non-DLG, and how that could change over a period of time. Also, would love to understand how the consumer loan is scaling vs the merchant loan right now that consumer loans have started to pick up?
Yeah. I'll talk about consumer loan, merchant loan, first of all. One of the things, Sachin, we learned, that we don't have, or rather consumer app business does not have any right to win in consumer loan distribution business if you are putting additional risk reward based bonus, which we have in the merchant side. So we switched our business model completely towards distribution without requiring any upside of or any FLDG to be given in consumer business. I think that has shown us the result. We've been able to distribute large amount of credit to the small or large consumer demands. We, in that category, can serve any size of ticket, and you can see the revenue. Surprisingly, I can only tell you, it has pleasantly surprised me also.
The team has done phenomenally well, and we are going to go double all in. There is an opportunity. To the DLG mix, I will ask Madhur to also chip in, but the simple answer is, we don't look at the mix. We look at the more availability of capital, more availability of lenders, and we want to have more number of people. I always say this, that, if there is a new lender coming in or if there is a lender there who wants to give us more capital because they want to take DLG, please take it. It is a revenue accretive because we get more revenue, and it is a profitability accretive because they open up more number of and more account of merchants and the dollar value or the rupee value that they disperse.
It is overall, in our business model, the one single downside is that it has a charge in the immediate month, but it is because we want to remain a credit distribution platform, never have anything which is future forward discounting of any revenue. As board guided, we have taken a straight charge in the same quarter. So you will see that our revenues in that quarter will also have a cost because of the DLG reason, but it is overall as a business. It is rather a better business that there is no future forward discounting to be added in the revenue. Incidentally, it is a pure technology business, and then we are happy to extend this, which gives us more revenue in long term. Madhur, your point of view.
Yeah, I think Vijay covered it. We don't say no to a lender just because they want DLG. We don't route more to a lender who has less DLG or no DLG. The idea is to find the right lender for the borrower, and to do as much business as possible. As we have mentioned consistently, even when DLG was going down or going up, we have consistently mentioned that we are largely indifferent to this. If a lender has a preference, we let them have the DLG. It does backend some of our profitability, so that is worth pointing out. When there are changes in DLG mix, it's worth pointing out to analysts just so that they get the models right, that some additional amount of our profitability is getting back-ended.
The final point I will just make is that we've been doing this for about 2.5 years, so we do have some method to this, and we do know how to manage the DLGs quite well. It has never really given us any negative surprises or results, so we're quite comfortable with running a large book within which a large percentage might be DLG based.
Thanks. One last quick one. We are already at October end. There is a market share cap of NPCI at 40%. Anything you are hearing from NPCI guys, key officials, if this would be implemented in December?
We are the receivers.
Yeah. Thanks a lot.
We are trying to optimize for this situation.
Speaker on for time. And mute and unmute depending on.
[Non-english content] Sure.
Great. Thanks a lot, guys.
Thank you.
Thanks, Sachin. We will take the next question.
Yeah. That's right. Go ahead.
We will take the next question from Manish, followed by Vijit Jain from Citi. Manish, you can go.
Thank you. Hi, Vijay, Madhur. Good to chat with you. First, a couple of follow-ups from the earlier discussion you were having to Sachin's questions. When you mentioned you want to go all in on market share. One, is that comment specific to consumer market share or is that broad across—
Consumer market share and merchant market share. The idea is that whenever we are talking market share and market share cap, we are talking about consumer. So whenever I'm quoting specifically, it is for consumer. In merchant, we are all in, and it'll be awkward for us to lose some weight.
—when you say you want to go all in on market share, what will drive that?
Customer acquisition. We need to acquire customers in different ways and segments where there is some or other thing, whether it is marketing spend, whether it is collaborative partnership, whether it is a product feature, whether there is something new insight, viral. My thing is that I do not want to do it based on only marketing spend, if you will, or cash back burn. I want to do it on product and features. We partnered with Perplexity at one point in time, if you remember. I was thinking that there will be large usage, but yeah, there is a lot on the table. Just do not think about it. We do not look at our consumer market share as a people have to only come for the UPI payments.
Very clear. My second question. Before the MDR implementation was pushed from 15th October to post Diwali, can you give us a peek into the kind of conversations you were having with your merchants? I am just trying to understand the operational implementation of UPI. I mean, whenever it happens, let us say post-Diwali, when you go to, let us say, a merchant and the cap is at 40 basis points, by default, does everybody get switched on at 40 basis points? Or is there a bilateral negotiation you need to have with each merchant to say that, "Hey, you will pay 40, you will pay 30." I am just trying to think that from an operational implementation perspective, how heavy is it, or can it happen at the flip of a switch on day one?
Flip of a switch on day one.
Okay. You don't necessarily need to go and speak to your merchants and tell them that, "Hey, it's happening." You can just do it, and then negotiation can happen later?
There's no negotiation. We work with small businesses. Big businesses have big bells. We don't. Our business is very straightforward. Small merchant, small work. Turn it on, it's done. If you are, let's say, a large merchant, you would like to negotiate that, "Oh my God, I would like to pay a lesser price." Then somebody else will enter with that price. Even then, you will negotiate only when somebody else enters. A small merchant is easier and a better superior business always, and it is complex to do it.
Right. Based on that statement, can I say that the majority of then your GMV transactions, et c., should be closer to that 40 basis points cap rather than a much lower number than that?
Yes, but it will come when there are transactions of INR 2,000.
Understand. Got it. Last question on just the growth momentum in the business. This quarter, of course, you had very strong growth across businesses, financial services, marketing, payments. Your commentary suggests that financial services near term looks good, marketing has recovered, payments, festivity, et c. I am just trying to think that across the various businesses that you have, are there any businesses where in the near term there is any growth headwind at all? In the past, Madhur, I know this is maybe more than a year back, you had guided for revenue growth in the 20s to sustain the medium term. Given what you have seen in the business in the last couple of quarters, I am talking ex of MDR, has that expectation of revenue growth momentum reset upwards? If you can maybe talk about that.
Yes. We have seen now two consistent quarters of 28% growth. While we stick by the reported numbers, if you exclude PIDF from previous year, same quarters, this number is in the 30s. We are seeing, thanks for pointing out, strong tailwind, and we had said last quarter that across the board. Consumer and merchant, payments and financial services, if you think about it that way. We are seeing very healthy tailwinds in the lending business. Personal loan, as we come out of the credit cycle, which was our expectation four or five quarters ago when we were in the middle of the credit cycle. Like Vijay pointed out, it is a personal loan distribution business. Merchant loan business continues to do very well, including some TAM expansion opportunities that we have talked about.
Both on the slightly smaller ticket size as well as the larger ticket size around the core business that we have been doing for the last seven years. On payments, we see GMV growth, market share growth, as well as better pricing, and all of this excluding MDR, of course. So faring really well. I think a lot of sharper execution also possible because of AI, because we do have a large cost structure on sales, on collection, on service, and so on. All of these things just become better ROI due to AI. Some of that shows up in better costs, some of it shows up in faster revenue. Some of this does show up in faster revenue. If we collect better, it shows up in higher revenue in our business model as you understand it, and that is just one example.
I think there are some very much smaller parts of the businesses where there are a few headwinds. For example, our equity trading business is doing quite well. Equity broking, rather, is doing quite well on MTF. Overall market volumes haven't been that great. So that hasn't quite scaled up as much as we would have liked to. Travel has been a little bit on and off. So there are headwinds in the travel industry as well. There has been a little bit of headwind overall in wealth, including the gold business. So these are much, much smaller businesses of ours. But because you asked, I just want to be complete. In 85%, 90% of our revenue, we are seeing significant tailwinds rather than any meaningful headwinds.
Thank you for answering my questions. All the best.
Nice.
Thanks, Manish.
One second.
Yeah.
Madhur is joining from different room so that we do not have echo in the same room. A little bit of logistical error here in the room. Okay.
We will take the next question from Vijit, followed by Pranav Kshatriya from Emkay.
Yeah. Hi. Thanks. Hi, Vijay. Congratulations. Good set of numbers, I think. My first question, just a follow-up on the MDR thing to what Manish asked earlier. In general, do you think the industry readiness is there for MDR to be switched on immediately post-Diwali in terms of, I know there were discussions around some outstanding points of clarification that were needed from NPCI, and there are various players in the payments ecosystem who are all supposed to be ready to do the MDR, you guys collect, but needs to flow through properly into the system. So in terms of that operational readiness, are we there yet for it to get switched on post-Diwali, any specific date? That is part one of my question, and then I will follow up with the rest.
We are ready. The industry is right.
The industry as well. Sorry, Vijay. I know you guys are.
Industry is bigger. Industry is bigger role. We are one of the participant. We are ready. We can do it. We do it. We already make MDR-based revenue, credit card on UPI credit line, which is Paytm Postpaid, issuing, acquiring, everything is working. It works.
Okay, got it. Perfect. My second question is—
By the way, for industry also, I will say it works. It is just one of the payment instrument called bank account. I am sure, Vijit, if you go deeper, MDR on UPI is slang word for MDR for bank payment on QRs, which other payment methods already have MDR, as you know, on credit card or credit line and so on. The system for everybody is working, actually.
—got it. It just needs the decision on the date in that sense then?
Vijit, that's right.
Got it. Perfect. My second question is on the devices business. Good to see another good quarter, 700,000- odd devices rolled out in the quarter. I'm just wondering, now that MDR is there, in terms of where you roll out devices, what kind of merchants you target, is there any kind of a change in who you would want to target? Would you look at merchants who do more of INR 2,000 + transactions specifically, A. And B, I know that there is this provision for improving penetration of devices in smaller tier towns, right? That's carved out in the UPI program from NPCI. And I know you guys have that capability and infrastructure already set in place. Is that where you would focus more of your device rollout plans on? I just wanted to get a broader flavor on how you're looking at that part.
Related question to it is your CapEx, your 1H CapEx on device rollouts. Is that what I should use as a kind of a benchmark on what CapEx would look like now going forward?
Vijit, as we have said, the MDR on UPI is an upside to our business model.
Right.
It is not fundamental to our business model.
Right.
I just refer back to that and explain what I mean, which is, in the small merchant space, the primary business model remains the same, which is we acquire through payments and we upsell financial services. At our current penetration rates and so on, the financial services revenue is significantly larger than either the fund or the MDR opportunity, et c. Right?
Right.
Short answer is, fundamentally- the core business does not change. In the very small merchant business, we will actively not get distracted by the fact that there is some, perhaps additional MDR opportunity, because the bigger monetization and the payback period comes from financial services. End of the day, the AI models that we use for what we call ARMS, acquisition, retention, monetization service, they throw up the insights as to, "Hey, put some more sales effort in this PIN code, put some more service effort in that PIN code." They will factor in the small merchant fund, the MDR opportunity, just like today, they factor in the RuPay on UPI, RuPay credit card on UPI opportunity. There will—
Got it.
—be that as an input, but I don't think fundamentally the model will throw up surprising new facts. On CapEx, yes, we have said it was about INR 400 crore on inward devices count basis, and we expect that to be the same. That number is a little bit higher than before, but we are focusing a huge amount on engagement and retention of high quality and high potential merchants because the payback periods are working so well that we just want to make sure that we have enough funnel going off of high quality, highly engaged merchants going into financial services.
Perfect. Thank you so much, Madhur. My last question on the net payment margins, right? This is a quarter where there is no UPI, so it's just a business ex-UPI net payment margins, and it's 9 basis points. Just general sense there, because top-down, if I look at the industry data, credit card spends has been kind of soft, right? Both QoQ, YoY, and nothing particularly interesting has happened, at least in the industry. I know you guys have other drivers, credit card on UPI, Paytm Postpaid, but device subscription fees as well. So in general, in the 8.5 basis points- 9 basis points move that happened in this quarter, what would you attribute that to?
I think part of it is a little bit higher. We have a certain threshold, certain type of merchant, what type of pricing do we want to make. I think there is just a little bit additional discipline around that number—
Okay
—which we have imposed. That is one. And the second is we have other factors as well where we are gaining good share, and we have had momentum for a while, things like EMI, DCC, et c., and the enterprise side.
I see.
So it is a combination of a few different things.
Got it. Perfect. Thank you so much, and best of luck for the next quarter.
Thank you.
Thank you, Vijit.
Thanks, Vijit. We will take the next question from Pranav, followed by Suraj Das from Sundaram Mutual Fund. Pranav, you may go ahead.
Yeah. Thank you, Vijay and Madhur, for this opportunity. My first question is regarding Paytm Postpaid. Your commentary suggests that Paytm Postpaid is scaling well. I do think that once there is MDR on UPI, possibly there should be enough reason for people to actually start accepting Paytm Postpaid even more. So how should we see this scaling up? There was a scale of roughly INR 9,000 crore in a quarter kind of a disbursement. Do you think we can reach there in a, let's say, a year or two? In terms of the customer also, it was a fairly broad-based, almost 10 million kind of a customer base, which was there for this product. So are we getting closer to those numbers? Any change in the behavior of those customers, what are you seeing? Because this was also a funnel for the personal loan.
So how this is panning out? Some color on that will be useful.
Number one, I do believe that it is even more apt, like you've suggested, for the acquiring side and issuing side, which is the consumer side, than when we had launched it, because the customers have learned about it, and it is more of multiple player game now. I'd say that when the market has learned the product. In first avatar, we were teaching a product. This avatar, we already know the customer is using. So we do believe that it is having potential upside. One or two year, I don't know whether it'll be dash amount of quarters or dash amount of quarters, but it has a target expectation of those numbers. There is no secret about it. Why would we not want to reach those numbers?
And at the same point of time, Madhur has quoted, I have quoted, we have quoted that it is accelerating better than before. So it took time last time. It will take time this time. We want to be very sure of quality of customers, quality of credit book, and so on. And incidentally, it is an EBITDA positive business by itself. So it is a contribution margin positive business for us. And we remain committed of a large customer base and large merchant base. And when the customers and merchant end up using it, large disbursement will show up.
Yeah. I would just point out that there are certain elements of this network which have grown even further ahead from the first time around, which is the number of merchants who accepted in month six, nine month , month 12, as you would imagine. And that is kind of going back to your point a little bit that, hey, if they were accepting RuPay on UPI now, then they shouldn't have a problem paying with this and with MDR that should also. The spend per active customer started at a very solid number, so it didn't sort of start low and started going up. The customers who were using it already were loving it. Also, are learning from the collection work that we had done previously. That is directly being used now. So we didn't have to get better and better at collections.
We actually started with a very high base of learning and technology, and so on. So all of those things are helping us, as you would imagine.
Excellent. My next question is actually a follow-up to Vijit's question. So if I assume like INR 60 kind of a rent per device, then payment processing margin is like 5 basis points, and whereas you state that it is above 4 basis points. So there seems to be a fairly strong growth. I'm asking more about the sustainability of it. And some color on what is driving it, because it can be either bill payment gateway, RuPay credit card penetration? So, some color on that.
Pranav, I will take it to another dimension where I read a few reports and they talked about that there is a GMV, which is nearly only quarter 1% up.
Right.
We have gone strictly high-quality merchant. Strictly high quality stands for you give up on large online merchants who are negotiating dollar for $0.90 . They are discounting something which is lesser than the source price. Many companies want to IPO or raise more money in private markets. They do it because it is good for them. But for us, it is okay not to. This is specifically in online category, if you notice. Especially if you know this was a festive season where they were negotiating especially hard because they wanted to put money somewhere else to use. So we were like, "We do not participate in it," number one. Number two, there has been a bad customer in commercial sense for us that had to conclude the transaction. It was large insurance company.
We probably concluded the contract so that GMV did not show up, but that is just bottom line contribution, positive business. These elements, basically, Pranav, we are very clear that it is a free cash flow generating business now. It is no more about you snap a customer or over to, because ultimately every customer is our customer. It is rather choosing the good quality of revenue and bottom line driving revenue. There we have become aggressive in acquiring more customers and more type of payment options for payments and cross-selling.
Instead of trying to just say that, "Okay, this is really cheap and I am ready to discount it below price that I am sourcing." So what you saw is very nuanced, and I acknowledge that it is very well looked at, looked through, and the reason is that we are looking at good quality GMV over any GMV that is available in the market. Quality stands for bottom line contribution.
Excellent. My next question is regarding the investment. You talked about Paytm Cloud Technologies Limited. There is a INR 500- odd crore rupees enabling resolution to invest over next 12 months. Can you throw some light on where that investment will go into? Does that have anything to do with the CapEx increase, what you talked about?
I think I acknowledge that the name Paytm Cloud Technologies may kind of give the wrong idea. There is a small need in one of our 100% owned subsidiaries in the near term, potential need. When we went to the board, we took an enabling resolution that we can put up to INR 500 crore in the subsidiary. The same INR 500 crore, up to that number, can be put in one of our international subsidiaries as well.
Right.
This is allowed over 12 months in multiple tranches, right? It is not one specific need. It could be a combination of three or four things, which might add up to a few hundred crore, up to INR 500 crore. To the extent that it is being infused in the Singapore subsidiary of PCTL, Paytm Cloud Technologies Limited, that is likely to be used for some seed investments in international markets. We don't expect at the moment that, and we don't have any concrete plans for that to be actually INR 500 crore. It could be up to that number, could be lower, but there's an enabling resolution that we have taken. Of course, as and when we infuse funds or make any investments, including seed investments, most of those will be disclosable right away anyway.
Sure. Thank you so much for answering all the questions. Wish you all the very best. Thank you.
Thank you, Pranav.
Thank you.
I would request the speakers to please restrict their questions to two. We will take the next question from Suraj, followed by Pranav Gundlapalle from Bernstein. Thank you.
Yeah. Hi. Actually, I have four questions, not two. But anyway, I think I will ask one.
But I think you were in the queue [Non-english content]
So first of all, I think great set of numbers. Congratulations on that. My first question is on this P2M GMV. I think it seems to be flat on a QoQ basis, and I think which is happening for the first time since COVID. So maybe, what is your thought on it? Why it is flat QoQ this quarter? How to think about this? So, yeah, that is my first.
Yeah. Can I just quickly answer this? Q2 vs Q1 is usually a little bit subdued, but it depends on the timing of the festive season. If you get some of the festive pre-sales coming in Q2, then Q2 vs Q1 can be higher. This time, obviously, we have a late Diwali, so the festive is almost entirely in Q3. That is one kind of general factor. Specifically, what I think Vijay sort of mentioned, and I connect back to this point, we have a certain threshold for how much margin we want to make from a certain type of customer. For example, if it is a large enterprise customer, we will have a certain threshold of how much we want to make. We have been very meticulous about being disciplined around this number.
There have been two or three customers that have been affected because of that, and we are perfectly happy to let them go to competition. Within that, there was one quite large customer where we had a long-term contract. That has expired. We are discussing whether we would do it on a different pricing. If we are not, we are happy to let that customer go.
Okay. No, because this seasonality would exist also in earlier years, last four or five years?
Yes, it does, but depending on the festive.
No, holidays. Plus, I think the reason that Madhur is giving, if you look at this was a materially large negative contribution margin customer. Our contract finished, and we will do it only if negative contribution is taken.
Suraj, the evidence of that is in the point that Vijay was mentioning, that our 8.5 basis points has gone to 9 basis points, which is the net payment margin number. That was a drag customer on profitability, even though it was meaningful on GMV. That going away did have an effect. If that customer was there, you would have seen growth.
When you say it is meaningful of GMV, would it be share would be probably in double digits or maybe high- single digit?
Not double-digit percentage, but significant, yeah.
Sure. The second question is more on this investment. Can you throw some light that what does Paytm Cloud do? Is this also the entity through which you do this refurbishment of devices and CapEx? Because I see its PAT has jumped almost 7x on a YoY basis, while the number is very minimal, INR 84 crore. But why this jump? Does it have to do anything with the maybe supplying more devices to your Singapore, Indonesia, or any other country where you are probably planning to do this merchant business?
Right. The operations of PCTL are there, but not very significant. PCTL is an entity through which we make investments in some foreign ventures. For example, we had announced the setting up of a business in U.A.E. We have announced the subsidiary in Luxembourg. A lot of that is done through PCTL. I would think of it as largely, it is an operating company, but largely use of proceeds in that company would largely be funding other overseas venture, including funding needs of existing overseas ventures. That is the plan, but we do not have a firm number on it, which is why we have taken an enabling up to INR 500 crore, and we have taken it for up to 12 months, that we do not have to keep kind of going back to the Board for the same type of approval.
Of course, each investment, if any, will be approved by the respective boards. And will be disclosed if it is material.
Sure. Madhur, I think if I am not wrong, you also used to have one One97 Communications Singapore entity, which used to be your umbrella entity for international business earlier. Now, I think you are doing this international business through this PCTL. What is the difference? Because I think you got that Paytm cash in that entity, right?
Yeah. Well, we can take it to some of the nuances offline, Suraj, if you do not mind.
Sure.
But basically, One97 Singapore has been doing international business or some of our sort of old business, which is the marketing cloud business, where we service telecom companies and enterprise around the world. So basically, the One97 business as it was called. Whereas PCTL is doing largely the merchant payment and merchant lending partnerships. What we have described in previous press releases as partner-operated and Paytm-operated merchant payments and upsell to lending type of businesses.
Sure. And last two questions very quickly. On this AI platform that you have started offering to merchants. Once you start monetizing this whole business, in which line item of the P&L the monetization part will reflect? Cloud and marketing. Marketing cloud. Marketing services.
Marketing services. So amongst the three lines, it will come in marketing services. Of course, the nature of that will evolve over time, but vast majority, if not all of this, will be in marketing services.
Perfect. The last one is on FLDG. While I think we have had enough discussion on FLDG, I understand it is PNL neutral. Just from business point of view, why these lenders do flip-flop? For example, I think you were saying from next quarter onwards, one of your large lender would be doing FLDG again. I think three, four quarter back, they started doing FLDG, then they stopped, then they again coming back. Just from, let us say, business decision point of view, why lenders choose FLDG or not? I understand it is probably best for you, but because it is also a recurring thing, right? FLDG works like a current account or maybe, I do not know, something like margin trading funding from an operational point of view. When somebody does flip-flop every quarter, it looks like there is some decision factor.
Can you throw some light that what is that decision factor?
Yeah. This lender used to do FLDGs back in FY 2025. At the beginning of FY 2026, we had a discussion that they said, "Hey, it is not really that important for us to take FLDGs." So we requested them not to. So they said, "Hey, for two, three, four quarters, we will not." They were nice enough to not take FLDGs for six quarters while scaling up business with us and being one of our longest-standing and deepest relationships. So we are very appreciative of the fact for six quarters. What was meant to be maybe a temporary pause ended up being six quarters, right? So it is not a huge surprise to us that at some point they would want FLDGs again. Like I said, we are largely indifferent, so we do not challenge them on all the details of it.
But our sense is it may have also to do with certain RBI guidelines with respect to they can offset that against credit losses and so on. So then it is more useful to them, in the current construct than it may have been in previous constructs, right? But, like Vijay said, this is not a top thing that we negotiate with lenders, right? In fact, I tell the team, "This is not a top five factor for me." Do more business, do it with the right partners, do it obviously at the right credit quality. Make sure we are investing in collections. Make sure we are building funnel for more and more lending down the road. Do not be focused on six months. Focus on two years, three years, five years. Build great technology.
Those are things that we focus on when we are thinking about which partner will scale up over time. FLDG is way lower on our list.
Sure. Okay.
Of course, because we have conservative accounting around this. It all kind of comes up front. In this conversation, it is something that we have to highlight, and this time we have taken the opportunity to flag it, not at the end of the quarter, but at the beginning of the quarter, right? Of course, the quarter that we are discussing right now, there is no impact of that. But we have taken the opportunity to just kind of flag it ahead of time so that there are no surprises at the end of the quarter. In this conversation, it is quite relevant. In lender conversations, we do not pay as much priority to it.
Sure. No, that's good to hear. Thank you so much for answering all my questions.
Thank you, sir.
We will take the next question from Pranav, followed by Jayant Kharote from Axis Capital. To accommodate more participants, we will be extending this call for another 30 minutes, and I would request those people to please limit their questions to two. Thank you. Pranav, you may go ahead.
Hey. Thanks, Vijay and Madhur, for taking the question. Two questions. One is on the sales team additions. You have had a punchy addition to the sales strength. But your device additions are largely flattish on a year-on-year basis. Is this sales additions in a different area, or is it largely towards the same Soundbox additions? That's question one. The second question is on the lending business. Do you have a sweet spot in terms of GMV of the merchants where you would like to lend? Either based on EMI to GMV or EDI to GMV or any other such ratios. If you have such a range, how many of the device merchants do actually fall in that range? Because you have 16 million, but how many would fall into a lendable category? So those would be my two questions.
Awesome. The first question of [Non-English content] are in the same category. Pranav, they take time to get mature. We sort of train them, and we first give them retention jobs, revisits in the markets, if you will, and then we give them deployment jobs. So it is in sequencing. We have been able to recruit because we have been pending to recruit for a long enough time, and quick commerce has been taking up large number of people of these kinds. So that is why. You will see, hopefully, that we are adding more number of Soundbox merchants. And it is also that we are rejuvenating the relationship like you asked for. One thing that we are more bothered than the GMV is about aging on our platform. Because lot of time, the shopkeeper may be taking cash, may be taking another way of payments.
But the fact that he is retained on our platform gives him more probability to get a loan from our lender partners than the dollar value, which is large. Even if you look at the average ticket size of INR 200,000, we are talking about even INR 1,000 a day means INR 500, which is our threshold that the person should be able to pay every day. So INR 500 into INR 365. INR 500 into INR 365 + INR 365, that is the kind of numbers the ticket sizes are. So the threshold is not based on GMV, but rather based on aging and GMV. Some element will definitely be there. If you are earning, let us say, INR 100 a day, we are not going to give you credit there. By the way, we could give you Paytm Postpaid there. You remember that.
So not the term loan merchant cash advance. How many merchants are creditworthy? That is a very interesting one. Because if you notice, we have not dramatically added the count of merchants, because I have told my team it is a business model of, like I showed you in the beginning, a payment and credit. Payment and credit. That means that we need more merchants who are creditworthy than the merchants that are just signed up. Again, the quality, quality of merchant quality equal to bottom line, bottom line equal to financial services is a bigger bottom line than the MDR or subscription, and that means retained merchant is better valued, and so on. While we may have acquired a lot, we just remove the merchant whom we do not see active or transacting.
While you are seeing the net active, the gross actives are bigger, and that is why this number looks that it is less or not. But at the same point in time, all said and done, the net active that you are seeing, net active monthly, which is what we report every quarter, will grow up. Definitely will grow up. I personally see, on a base of 15 million, we believe that something in the plus of 10 million are definitely a good quality merchant.
Okay, so at least 2/3 you think would be customers you would be happy to, merchants you would be happy to lend?
It is all based on the relationship and aging. I do believe that I want even more than 2/3 to go on than to acquire new customers. That was the pitch to my sales team.
Okay. Would it be fair to say at least 2/3 have INR 1,000 per day or more, in terms of payment?
I don't think that is a number that I will often tell, but I do track literally the same number that you're quoting, lendable merchant, if you will, and 2/3.
Okay. 2/3. That's good to hear. Last one minor question, if I can squeeze in. On your indirect sales cost growth, there's a big spike in the software and cloud expenses.
Yes.
Is that a one-off or is this a new normal for your expense rate?
Well, we have com—
Sorry, go ahead . We have commented on it. As a part of some of the migration of merchant payments business that we did to our subsidiary, there is a little bit of platform redo that we wanted to do in terms of consolidating certain platforms, which does have some costs while you're doing that project. So that was largely in this quarter. There's a little bit of that in the next quarter. So there is that sort of one-time exercise. I should also point out that we are spending more on AI, right? We are seeing huge amount of gains and huge amount of ROI, largely in indirect expense and sales growth because of the spends that we are doing on AI. So given the nature of our platform, for example, if I am retaining merchants better—
—it will show up in revenue, right? If I'm doing better collections, it will show up in revenue. And there's also a tendency that, hey, if you reduce the cost of doing something, your one instinct is to try to do a little bit more of that activity, right? So you may not necessarily see that as a cost reduction. You may see that in revenue growth. So the combination of revenue growth, which is, like I mentioned, like for like now in the 30s- and indirect expense overall being very much under control despite the sales and service investments we are making, despite marketing cost and despite AI costs, we are seeing the goodness of that, right? So we monitor it very closely, but we are actually okay to spend more on AI costs as well.
Understood.
There is some element of that. Once that, I think maybe by end of next quarter, we will be able to kind of start talking about a slightly more normalized number, both for increase in AI costs as well as putting this one-time project behind us.
Perfect.
I want to specifically tell you, Pranav, a very interesting fact. I personally look at the cost and the output of AI at a different level than, let us say, Madhur himself as a cost control will look at it. I look at it yield of what shipped. So not just what got created, what shipped, what earned revenue, and so on. I am very happy to tell you that what we have made, obviously slowly, revenue does not show up immediately. Products are loved and liked. You are not spending so much. You are growing. All those advantages are very visible. In this quarter, when I looked at the cost of cloud, majority was because online business was in an entity.
Offline business was in an entity. We brought into single entity. The platforms were to merge, so there were duplication. Like Madhur said, little bit of next quarter also, it sorts out. So actually, majority cost was this migration.
Understood.
Majority incremental was migration.
Understood. So essentially, there is no need for indirect cost to grow at an accelerated pace for the existing business. Obviously, if you have ways of earning revenue through AI spends or cloud spends, then that's—
Totally.
—obviously great.
Very well put. It was very clearly because majority of cost of incremental cost on the cloud was attributable very completely towards this migration of online, offline. And now that brings us omni-channel payments, just in case. Same machine learns the route.
Thank you. All the best. Okay. Thank you.
Thank you.
Thank you.
We will take the next question from Jayant, followed by Prakhar Sharma from Jefferies.
Hi. Congrats, Vijay, and congrats, Madhur, for another great quarter. I will kick off on MDR on UPI. This 2.5 basis points, if you could give a broad split between consumer and merchant. And where it is coming from is clearly merchant, you guys are going to enjoy the fruits. On the consumer side, there is a worry of this pool getting competed out, especially for the top, let us say, 2%- 5% spenders, who will do more than just INR 2,000 spends. Are we going to throw our hat in the ring and willing to sacrifice a little bit of that margin, or are given what we have done this quarter, I mean, that—
Yeah. I would say, first of all, this is not implemented yet. Number one, so one can get into many different types of scenarios. I think what we have put forward is a number that we are confident of delivering. And like Vijay said in the response to an earlier question, that there are certain scenarios under which hopefully we will do better than this. That obviously when we are putting out a number, we do not put the high end of our number. We sort of haircut it for various scenarios. But specific questions about, hey, whether we should be assuming that there is more chances of being competed away on consumer side vs merchant side, what intensity would there be? I think we will only find out in quarter two, quarter three after implementation. Is that right?
—and important thing, Jayant, is that, let us be very open and transparent about it, that consumer business is ours to win. There have been, I would say, non-internal, not just led by us, issues that has made us have so less UPI market share of consumer, if you will. Our product and capabilities are continuously moving up. And internally, we are far more, I would say, expecting, hopeful, sure of our market share win than we were last year and last to last year. So, it is not something that the result is out and we are there. We would rather want to tell you that we will change the result with our hard work and perseverance and pushing as much possible, even on the consumer side. You said it already that merchant side, we will get the win, but consumer side is for sure ours to win.
You want to highlight, Vijay, what is this external thing? The numbers are very strong that you are seeing, or maybe I can take it offline.
See, Jayant—
We take it offline .
—yeah. My intention is to say that there are a lot of factors of, because we are part of a network that we have to align and work and get all the network pieces all together. The more you dig, the more you find optimizations possible. I am just going to say that erstwhile we were not so much focused on the product and technology as much we are, and the results are showing up.
Okay. Second is, in the MDR GMV that you have assessed, which is, let's call it the eligible GMV. Is that growing slower or faster than the overall GMV? What I am trying to understand is once we set a new take rate in the new world, does that take rate expand from there or stabilizes or maybe comes off?
I think the mix is not changing dramatically because obviously where Paytm has unique strengths is in the small merchant business, which is growing very fast. For different set of reasons, of enterprise business and the online business is also growing quite fast. Online, as you know, we were under embargo until August of last year. Starting beginning of this year, we are seeing good hunting goodness. In enterprise, we are improving because of EMI offerings, DCC offerings, greater distribution, et c. So we are gaining share across the board. So I do not think there is a huge secular trend that I can point to that we are at X percent eligible GMV, and I expect that to go up by 10 points or go down by 10 points over the next couple of years. I also do not think that will be a major factor.
The major factor would be just executing as well as we can for our merchants.
What would have happened last 12 months?
To be honest, I've literally not even bothered to check that data.
Okay. No.
I know what the data is as of this quarter, and I know that as we roll forward that data, the mix effect is not going to be a major factor.
Understood. One last I could squeeze in on the DLG accounting. While, Madhur, you've explained this multiple times, just because you want our models to be clean. Contribution margin shrinks, then recovers as we reach the tail end of the portfolio and the lumpy payments come out. All this while, EBITDA margin keeps expanding at a normal pace. Is that a correct understanding?
No. When contribution margin goes down, there is a drag on EBITDA as well, of course, in that quarter. When you go from, let's say for a second I'm giving 2% to a partner. If I'm going from 0%- 2%, that 2% shows up in direct expenses, in that quarter. And there's a little bit of additional revenue in that quarter, but most of the additional revenue comes over the duration of that loan. So that impact on contribution margin does slow down on EBITDA as well. What we have said is there's huge amount of tailwinds in the businesses overall, including in the merchant lending business, that we don't think that we're looking at EBITDA going down next quarter. We do think EBITDA will continue to go up this quarter despite this drag.
EBITDA absolute going down or EBITDA margin going down?
I'm saying the isolated effect of giving DLG is a drag on EBITDA. But on an overall basis, given the huge momentum we have as a company, quarter-on-quarter, we'll still expand absolute EBITDA.
Jayant, EBITDA margin [Non-english content].
Great. Sorry. Thanks a lot. And then sorry, Madhur, just because I will use this last. EBIT margin, depreciation going up, CapEx going up. How should we think about that?
I think depreciation year-on-year hasn't gone up very much. But like I said, we have done more CapEx in the first half than we did previously. So with a drag in FY 2028 and so on, there will be more depreciation. But it is all being done for a specific purpose, which is higher engagement, higher retention, higher financial services revenue. And we are only doing this because we are seeing great payback of putting in that investment, whether it is in service cost, whether it is in CapEx, on the eventual financial services and other monetization funnels.
Perfect. Congrats once again for a great set of numbers.
Thank you very much.
Thank you.
Thanks, Jayant. We will take the next question from Prakhar, followed by Gaurav Rateria from Morgan Stanley. Prakhar, you may go ahead.
Sure. Thank you, Vijay. Thank you, Madhur. And great set of numbers. Good to see high growth companies. Just quick questions. One thing which really impressed, surprised me, your monthly transacting users. On a quarterly basis, you used to add one to two million customers a quarter. This quarter it is five million. Fabulous numbers to see. But, when I tie it in the fact that you are far more focused on quality customers, of course, this is total users. One, how does this tie up, and is this a run rate that can sustain for at least for some quarters and then it normalizes? That is the first one.
I wish this sustains for sure for a few more quarters and more quarters, number one. Like I answered in previous question, and in the beginning of the call itself, that it is one of the most critical KPI that I personally carry. The number of new users and users and so on and so forth. By the way, we hit internally even 100 million sometimes, even the users on our platform. So I am going to say that our target is to take 1/3 market share in this business. There is nothing less than that we will settle for.
If I can just ask you, if there are two things that are working very well for Paytm, what are those? Because this run rate going up at such high level—
Good product and technology. The industry has not seen good product and technology. Straightforward. It is good product and technology, cleaner, simpler, good product and technology. Like I said a few minutes back, the more we are digging in, more we are finding out, "Oh my God, why was this blocked? Oh my God, why was this blocked?" Then we go back and solve for it. Prakhar, let me say this, I am very clear about it. Paytm has top-of-mind recall, Paytm has a product, Paytm has a technology, Paytm has rather superior technology. I am going to say that also very clearly now that I know of what everybody else is doing. I think the amount of attention that we are able to do it is something that we believe many others have to monetize. We have understood what the monetization is.
There is lot of advertisement and lot of cross-selling that is attempted. Other products have also started to become, I would say, reason for our customers to move to us. In a way, lot of positives in both ways.
—good. Got it. Second question is, sorry, going back to the MDR on UPI. Just wanted to know, there are a couple of lobbies of merchants who are also trying to negotiate for a lower MDR, which includes the petrol pump lobbies and maybe there are others, et c. When you have talked about the 2.5 basis points as additional revenue pool that you might get, have you factored those negotiations or it is as is, where is sort of calculation?
Prakhar, we have taken the framework from NPCI as is, because again, you end up going into many scenarios. I will point out that it was postponed maybe a few days, maybe a couple of days before the implementation go live. Our understanding is whatever those things are all sorted out. Had they not postponed it by one or two days, keeping in mind Diwali and festive season coming up, then it would have gone live on October 15 in the format that they have put out there. There is no mention that they are revisiting the framework or anything like that. Again, given we are doing an earnings call and given this development has happened, we thought it was important.
It is unusual for us to comment on something which is not implemented yet, but given it is a major factor and a lot of analysts have asked about it, investors have asked about it, we did want to put the estimate out there. My best guess is that the framework will not change right now, but I could be wrong. Obviously, I don't control it, but we are reacting to the framework as it exists and is, quote, final.
Got it. The last part is that, on the lending side, you've had great growth. But when you look at the customer base, if at all now or even later, can you give us some insight on how good the portfolio or these customers are and what are any of the risks that you are monitoring? It could be regulatory, in terms of pricing, et c. Or even any of the cross-sells like insurance. There is this huge paper that is there. If that is of a relevant outcome for you from insurance attachment that goes with it. Any clarity on that? Because it's been your fastest growing revenue pool right now.
Prakhar, the good news is that we did not have any insurance revenue. All upside, downside is not belonging to us potentially there. Neither we tagged or we were topping up some margin by cross-selling, tagging along insurance or something. Nothing of insurance. Quality of customers, I think the core answer is that our disbursements are growing. Lender count and the volume are growing. In my opinion, lenders grow once they are happy with the kind of customers they are getting. Book responsibility belongs to them, and our responsibility is of disbursement and collection. We ourselves continue to keep an eye that we are collecting good and collecting nice. I think in a bigger macro sentence, I can say that our collections level of details tell us that there is a huge opportunity and festivities are showing up.
We believe that the kind of It's an AI language recipe, by the way. It's not a chef language. The recipe that we have built of financial services distribution, credit distribution is something that is unique, and I'm pushing it as much into AI so that it is not even humanly dependent internally and so on. We'll see a lot more. I don't think there are something that we are looking and we are not talking about it. We rather are always discounting in advance, if you know in past. Right now, there is not much that I don't see anything. Madhur, anything to add?
Just to clarify, Prakhar, on merchant loan, we do give ECL data. It is largely unchanged in terms of the range that we give. PL, of course, is distribution business only. I just wanted to add that we take huge responsibility of being cautious on this business. While on the one hand, we keep trying to improve the funnel and the lendable base, like Vijay mentioned earlier, that is what we count on for the growth of the business. We don't count on, hey, we are going to be reckless and loosen the policies and those sorts of things. There's a reason why we want to be very cautious and very responsible about this, because now we have over a dozen lending partners. Many of them have been with us for three, four, five years now.
We also think that we can create something which is a huge agent for financial inclusion if this continues to scale up linearly and at a fast pace for the next five, seven, 10 years. We think this is the product that can create huge impact to small merchants in India, where financial inclusion, employment, investment, so many great things can happen. Like Vijay showed at the beginning of the meeting in the presentation, a model which is also, we feel like we are pioneers of. We could take to other countries as well, because this is a problem which obviously we're going to prioritize solving in India first, but there's also a problem which is unsolved many other parts of the world. But the starting point of that, you have to be cautious and responsible because it is a credit business.
You have to recognize it for what it is, and you cannot afford to have six good quarters and then two bad quarters. That kind of sets you back not two quarters, it sets you back many more quarters. So you have to recognize it for what it is and be as cautious as you can be.
Prakhar, like Madhur said it, we do not want it to look like there is a future time bomb sitting in our revenue. One thing is very clear, that's why conservative accounting, not letting revenue come in, which could be discounted obligation in future. The best thing I can tell you is we want to be distributor technology company. We don't want to be the book owner company. We've announced it to the public a number of times. I like financial services business, but not so much that we end up taking the weight of the book on our shoulders. We will remain a technology platform, a platform business that compounds by consumer and more usage. Customers include merchants and consumers both.
So it's a technology distribution business, and I'm very happy to say that SKU that we distribute, if you were to look at it in a slang way, credit is very highly in demand, and it requires logistics equivalent of, if you will, collection. Voila.
Absolutely. Perfect. Thank you so much, and best wishes to all of you.
Thank you.
Thank you.
We will take the next question from Gaurav, followed by the last question of the day from Rahul Jain from Dolat Capital. Gaurav, you may go ahead.
Hi. Thank you. Hi. Congrats, Vijay. Congrats, Madhur. A couple of questions. First, the MTU acceleration that we have seen, is this led by better cross-sells or improving churn? It appears that your CAC has fallen substantially. How sustainable is this?
Gaurav, idea is that, we've been using these words, but I'm going to repeat the same words that are written. When you start to look at whom do you want to acquire, you spend less money on spreading in a wider customer base. So per customer who's a valuable customer, it shows up as a lower CAC. We have large enough budgets. We want to expand and expand the customer base, for sure. We will spend more money on customer acquisition. But like I always say, the valuable customers, not like spray and pray, get the large number of customer and hope that there is a UPI GTV, which is converting someday in revenue. That being the case, how has the CAC improved? Just by focusing on whom to acquire or not acquire. As much precise that we can become. And who allows it?
The AI models allow this to happen. Our models are made by us. Our models are not third party. This is a very important sentence. We are not renting intelligence from outside. We make our own models. We make our own system and capabilities. And that is why we've been able to nuancingly give these outputs. And the elusive dream of AI, that it'll behave N equal to one, it'll behave and deliver impactful outcomes on cost of operating and revenue upside. That's what we stand for.
All right. My second question is on the investments that is going in the AI part. Of course, right now, it's a drag on the P&L. When it starts generating revenue, it will be accretive from an earnings point of view. So how big is that drag right now? What would be the operating leverage that we can think about it?
I wouldn't say it's advisory just to clarify.
It's an uncomfortable.
Yeah.
I don't know how the migration of cloud from other payment system to the new payment system in sense it absolutely no drag. Every dollar that we spent on AI has more number of dollars made than ever. Absolutely no drag. It is not that we are. Either it has accounted for saving more cost than it has spent, or it has earned more revenue than it has spent. So Gaurav. Absolutely no drag. We are not bullshitting on random KPI call. How many tokens do you spend? We do not even talk about that. We rather are one of the most efficient users. Madhur was invited by Cursor to become part of the global CFO council they made only because they said you are the world's fourth most optimum coding model user in the world. I am sorry to say this, absolutely no drag, absolutely no confusion.
Cloud cost increase is due to our migration of two machines running into the becoming one consolidated machine, and all three switched on for some time and they optimize.
Sorry. Let me just clarify that cloud expenses have gone up. There are two main reasons for this. One reason is this consolidation that Vijay mentioned, which has nothing to do with AI. We had our online business payment stack in a subsidiary. Then the offline business moved to that subsidiary end of last year. We were running two different stacks, right? Because there was one payment stack for online, one for offline. Beginning of this quarter, beginning of last quarter rather, we started a project to consolidate those, which gives us higher TPS and better efficiency. That project requires certain one-time cloud costs, right? Because of the way the data queries work and so on. Most of that was done last quarter. Some of this will be done this quarter. I am not saying that this quarter, suddenly the cost will go down.
That was the major component. The second component, yes, we are spending more on AI. Gaurav, in our case, it is not, "Hey, you spend on some AI projects now and you will get the benefit six to 12 months from now." Maybe it is the case for other companies. I cannot comment on that. I think if it is different, I would say it is probably because we already work in a very data-rich environment, right? If AI changes the decision, for example, that put do more sales effort here or do more service effort here, or visit this merchant vs another merchant, that is how we are running our business anyway. Now AI is giving better inputs, for example, right?
If AI is helping us deploy something faster, it is, "Hey, instead of deploying it in three or four weeks, we are deploying it in two or three days," right? You are getting that uplift as a result. Because we are very data-rich, very data-led in our decisions, and it is end-to-end technology anyway, the impact of a lot of these AI things that we do starts to show up almost immediately. Of course, there are greater long-term benefits because models are getting better. They are getting smarter about looking at our context and so on. Yes, but more than 1x, for sure, multiple X benefit we think we get right away in that quarter. Then over time, hopefully we get better and better.
All right. Last question, Madhur. How to look at the sustainable operating leverage in the business like every incremental dollar that you make in CM, how much of that will flow into the EBITDA? And similarly, how much of that EBITDA will flow into the free cash flow on a sustainable basis?
We don't try to manage it quarter and quarter, but at least the target that when I take a step back, the way I look at it is, our indirect expenses, including higher expenses in marketing and sales and service and cloud expenses, et c., should over a three, four quarter period, grow at less than half of revenue growth. Right? Revenue growth/CM growth, assuming CM through the cycle is stat-ish, should grow half of CM growth. Let's take CM growth to be a little bit more precise. That does two things. One is there's structural operating leverage. Second is if you can accelerate revenue growth, then you get accelerated operating leverage.
Similar thing on the free cash flow?
Free cash flow also, but there is this component of CapEx which we'll give more guidance on next quarter. But broadly, free cash flow will work in EBITDA terms, right.
Got it. Thank you.
Just to be clear, we do EBITDA. We do not do adjusted EBITDA, so no ESOP cost. ESOP cost already after that. Yeah.
Got it.
Thanks, Gaurav.
Thank you, Gaurav. Good to see you again. You want to take Rahul? I think we lost Rahul. Go ahead. Hi.
Yeah. Hi. Just one last question from my side. I just wanted to understand how the maturity of some of your lending partner has evolved over a period of time because they've been now using platform like us, and we're clearly seeing that they are scaling the capital that they are deploying. But in terms of getting respect for the data that we are trying to provide, because one thing is using it as a digital channel and one thing is respecting the data that we have. So is it being seen in terms of the approval rate or their collaboration on our data, or is it still more restricted to their own ways of underwriting? That is what I wanted to understand.
They will. I think scaling up is a measure, Rahul, of the fact that they have more confidence on our insights. I think there are other aspects of it, though, which is also they have more confidence over time on our collection capability. Because remember, we help them with distribution and collection. So collection capability. As they scale up, they spend a lot more time with that collections team as well to understand how we monitor collection, how do we do early warning signals. It is not just about, "Here's somebody we want to link with now.
Can you go collect the loan?" Actually, we have the ability to look at early warning signals and make sure this sales and service team expansion, part of it is in this area, that do early intervention to make sure that the merchant actually does not drop below a certain GMV, because we see daily GMV, of course, right? So they have more confidence in collection, and then they also come on board some of the journey that we would have had with other lending partners, which is to say how to think about repeat business, how to think about top-up business, how to think about newer segments, newer PIN codes, et c. That is a constant dialogue. There is a lot of collaboration and dialogue between us and lending partners.
Of course, they start with something that they understand already quite well, but over time, many of them, I wouldn't say all of them exactly at the same pace, but many of them are curious to say, "Hey, what are the factors for scale up of this?" Right? Part of that is also, obviously, sorry, I forgot to mention technology as well. They will work with us to say, "Hey, what are the bottlenecks in this? Is there like a KYC failure that we need to address? Is there something else that we need to address?" So they'll work with us on many of those things as well.
Sure. On the marketing business, have you mentioned that what is the driver in this particular quarter, and how soon we see a meaningful number on the AI revenue, let's say any milestone number, INR 500 crore or 5% on our revenue, any benchmark, how soon we could expect that?
I think we probably will take at least two, three quarters more, at least, because it's a brewing thing. It's a small revenue per merchant, and sizeability required size enough. In the large revenue buckets that are swinging the revenue, it will, for some time, show small, but then it can grow. Maybe, by same quarter next year, we should look at what it has done.
Sure. That's it from my side. Thank you so much.
Thank you, Rahul.
Thanks, Rahul. With that, we have come to an end of this call. Thank you so much for joining, everyone. Have a good day.