Good evening, everyone. A very warm welcome to the made in Zoom conference earnings call of Pine Labs Limited to discuss the operational and financial performance of Q2 FY 2026. We are delighted to have with us today Mr. Amrish Rau, Chairman, Managing Director, and Chief Executive Officer. Mr. Sameer Kamath, Chief Financial Officer. Before we begin, I would like to remind you that some of the statements made during the course of this discussion may be forward-looking in nature. Actual results may vary significantly due to various external factors. This Zoom conference call is intended solely for investors and analysts. If we have any members from the media or journalism community on the call, we request you to kindly log off from this session. We will be happy to connect with you separately if required.
We will start the call with the management, showcasing a few product demos, followed by an overview of the company's business, key operational development, and financial performance for the period under review. This will be followed by a Q&A session. With that, I would now like to invite Mr. Amrish Rau to commence the presentation. Over to you. Thank you, sir.
Thank you very much. Thanks for attending our call today. One of the things that we are going to do a little bit differently is we are actually going to do a couple of product demos, just talking about some of the things that's been "cooking" in the labs. We feel quite proud about some of the experiments and some of the products that we are working on. So we will first do two product demos, and then I will do a very quick overview of the business and how I'm looking at the opportunity in front of us, and then hand it over to Sameer, who's here in the room with me, to just walk you through the financials. With that, what I'm going to request is I'm going to request my colleague to flash a demo. I'll give you a little bit of a background on this one.
One of the things which is happening when it comes to online payments, more so globally than in India, is that consumers are finding it very difficult to remember the 16 digits, the CVV, the expiry number. Also, what we are getting to see is transmitting of data just by inputting it on somebody's web page instead of using a card is generally less secure and also more costly. So we've come up with a completely new online payments technology where we think you can use your card, touch it to your phone, and the payment transaction can be completed. This is on the consumer side. Let me show you a demo of what we built together. We've actually gone ahead and patented this technology. We are now trying to figure out how we could do a GTM for this, both globally and in India.
Online shopping is fast and easy. One-tap orders, instant deliveries, everything happens within seconds, except the payment part. There we are supposed to remember the card number, the expiry date, the CVV, and then wait for the OTP, which adds friction to a so far seamless experience. We at Pine Labs wanted to bring the tap-and-go experience at the online checkout, therefore launching Tap to Pay Online by Pine Labs. Go to any online shopping app, be it e-commerce, ride-hailing, or food delivery. Simply select your product, go to the checkout page, and where it says Payments, select the Tap to Pay Online. This invokes the NFC of the phone. All you have to do is take your card and tap, and done. Faster, secure, and more convenient. No need to remember the card number, no need to save your card number, no CVVs, no OTPs. We at Pine Labs want to turn every phone into the fastest checkout experience on the internet.
As I mentioned to you, we have got a patent for this one. Now we need to figure out what's the GTM. So this is some of the experiments that we are doing on the online payment side. I also want to talk about what we are doing on the prepaid side. Everybody thinks of us on the prepaid side as purely as a prepaid card, debit card, or gift card. But we do a lot of work on the wallet side where we actually end up storing money. One of the concepts that you would have seen around the world is also about how money is becoming programmable. So what we did was we said, how can we make our wallets programmable and deliver value through that?
And this is a live example of what we are doing for Air India, where in the case of Air India, we manage the entire wallet for Air India, but we've also come up with very interesting use cases around it. I'm going to let one of my colleagues, Anand, explain to you what we have built for Air India.
Thanks, Amrish. I hope my screen is visible. Amrish laid the groundwork here. I would say that you probably know us as the pioneers of gift cards in India and globally with prepaid also being there. While that's been the case of it, I'm going to today talk about the programmable currency. What programmable currency really means is that a currency that can be used for very specific purposes. Now, stablecoins and CBDCs have been in the headlines for some time now, and they call the programmable money as a big part of their vocabulary. But what we have been doing successfully for many, many years now is to use the same concept to bring up through the stored value constructs and the prepaid card constructs, the programmability of it.
I'm going to show you quickly how Air India, in a very interesting way, uses the prepaid constructs to solve their business problems through our abilities. So for this example, just a moment, assume that I'm a U.S.-based individual who frequents India. I have just done a cancellation of a ticket that went on to be refunded to me in a canceled amount from Air India, and it's sitting in my Air India wallet.
What you will see now is that I, as a consumer, go on to the website of Air India, and I could come to this path many different ways, but I just wanted to show you that when you click on some of these paths, Air India will flash that this particular program is run by Qwikcilver, which is the Pine Labs issuing part of the business, and taking it to a site where this particular site is entirely managed and operated by Pine Labs for the benefit of Air India in the technology sense of it. Within this, it's an embedded wallet that can be used for different purposes. I'm just going to quickly move around without trying to show you the specifics here and showcase that this particular element is already loaded. I'm sorry, just hold on for a moment as I move the browser out.
Yeah, let's say that I have already logged in, and I have logged in the session in terms of what I can achieve. So what you see here is really that because I'm based in U.S., I'm able to see a U.S. dollar-denominated wallet that is belonging to me. And that's the base currency that has been defined. And what it really means is that we have provided a product that is globally usable by Air India in this particular case. Now, what you will also get to see is that this is not a singular wallet. It has its own different ways and purposes of using this particular program for Air India. There could very well be different pockets, like one that is related to gift cards, where my friends and relatives have given me some gifts that I get to store here.
There are compensation vouchers that are provided for some service that has not been provided satisfactorily, and there is a goodwill gesture of providing the currencies, and there are refunds and cancellations that have happened. Underneath each one of these things are different instruments. They themselves are an aggregation, so there are very, very granular ways that the program can be structured and run by the airlines. Quickly, I'll also demonstrate to the point of view to say that let's say that in one of the trips that I made to India, I happened to have a refund. That's kind of captured here as a INR 15,000 worth of it. But remember that I'm a U.S.-based traveler, so I need to understand as to what exactly happened when this particular value comes into my base currency, which is the U.S. dollars.
What we provide for is an automatic conversion of foreign exchange here, ability to understand as different currencies into the same pocket. And this is a significant value, a significant benefit for Air India in structuring and delivering programs for the global consumers. Let me now quickly move on to the aspect of the interesting note of programmable currency that we spoke about. I'm getting into a refund scenario where some of these instruments have been issued to me. And here is the more interesting part of how the voucher program runs for airlines. What you could see is that this is a voucher issued, but very, very specifically meant for certain use cases, specific purposes. So this particular voucher has been constructed in a way that it can be used for only certain routes within which this can be applied.
It is not possible to use in certain particular dates, which are called the blackout dates, maybe for managing the peak seasons, and it's not transferable. The same person who traveled with a PNR number of a certain number is the only person who can make use of this particular voucher. This kind of a construct of making use of very, very specific purpose-bound mechanisms are what makes these vouchers and currencies unique and allows the airlines to administer very powerful programs that are otherwise not possible with traditional systems. These conditionalities are also the ones that allow for very targeted promotions, revenue assurance programs, margin management programs on the same platform.
So what you're getting to see here is really, in another way, an airline making use of a configurable element of our platform, the same platform that we have been able to use as a very universal program and can achieve multiple use cases across various industries. For example, when a government, be it a central government or a state government, wants to give a direct benefit to a particular individual that can be used only for a healthcare benefit, we could issue a currency which is programmatically managed in such a way that they get accepted only in health center locations. So now let me quickly move on to show how this particular voucher can be applied on the purchase part of the trip, which is my next trip.
And I'm going to make use of a quick video to demonstrate, knowing that we are running out of time here. So I'm going to run the video and parallelly speak about it, if that's okay. So here you see that I have a card, a voucher issued, a refund. As we spoke about, there are specific dates within which we can apply it or not. I go to the main site, choose a Delhi-San Francisco flight in the month of March, which that particular voucher that I happened to select had a blackout date. So when I go on to now apply that particular mechanism in the payment path, I choose the wallet as my means of application. You will get to see that the voucher cannot be applied because of the blackout period that has been done.
This is a very instantaneous recognition by Pine Labs in terms of what is possible or not possible to be done. Now, if I change my mind and say, like, I want to travel in January, choose the same path, which is outside the blackout date, it gets applied, and we can continue to work through in terms of whatever the value that is presented by the voucher. So what I really demonstrated here, I just want to quickly recollect, is to say that we offer our customers a full-stack programmable currency platform. And this is usable across our issuing, processing, distribution, and solutions that we support, every bit of conditionalities, and a multi-currency mechanism that allows us to deliver contextual commerce, be it for airlines, government, retailers, and any bit more.
So as the world is today talking about stablecoins, CBDCs with programmable currency as the future, Pine Labs issuing, I want to mention that is already delivering to that context today in production for enterprises like Air India. And the same thing is extensible to a very different and very big audience of use cases and industries. And that's us on the Pine Labs issuing side of it. Thank you. Back to you, Amrish.
Thank you, Anand. Thank you, Anand. And great job on the timing. Guys, now moving on to the other part of the discussion, which is really the financials that we came up with. So we've got a formal deck, which is very similar to what we have sent out as our earnings report. So I would like to talk you through how our quarter has been. As you know, quarter two and quarter one are generally the softest quarter in the four quarters of the year. However, what I'm glad to inform you is that we've had a fairly powerful start, and that's what we will share with you just now. Just a few initial slides. I want to remind everybody what's our vision statement. We want to build the best commerce and fintech platform from Asia, but we want to build it for the globe.
I also want to remind you that we are a fully diversified fintech platform operating in all areas from online, offline, using the digital payments infrastructure. We just saw what Anand explained about the issuing platforms and the opportunities on the issuing platform. But also in terms of revenues, we continue to be extremely diversified between merchants, banks, and financial institutions, and also enterprises, corporates, and brands. Something which we did not talk enough about, and I wanted to take the opportunity to mention here. Pine Labs is one of the only companies which is powering all the top five banks in India. Every one of them uses Pine Labs platform, and we are the dominant partner. Point number one. Point number two, when it comes to the top five retailers in the country, we are a dominant partner. We are not number two to anyone in that space.
In the case of the top three petroleum companies, we are with all the three petroleum companies, whether that be BPCL, HPCL, or IOCL. We power all of these three petroleum companies in the country. And when it comes to online payments, bill payments, and also the whole prepaid card instruments, we today have relationships and deep relationships with all the three e-commerce companies, top three e-commerce companies of India. Also, with all the three Q-commerce companies of India, Pine Labs is the sole provider. So one thing I do want to highlight is there is no other payments company in India which is actually delivering solutions to all of these large stakeholders in the country today. Again, a very quick recap of what we do. We pretty much call out four large pillars.
One is what we do in terms of transaction processing, both in the offline world and in the online world. In the offline world, as you know, we have a large component of revenues which comes out of subscriptions, rentals on a monthly basis. When it comes to VAS and affordability, we do a range of services over and above the merchant relationships that we have built. Here we take a take rate on the value which gets processed on our platform. One of the things that Sameer is going to tell you is in the first pillar in Q2, on the terminal, the subscription and rental-related revenues is now down below 30%. It is at 29%. So 71% of our revenues are not linked to subscription and rentals associated to the POS business. I have been taking a bet with my colleagues out here.
I said, whatever we say at the end of this call, when the Q&A starts, the first question will be about the POS business. Let's talk about the 71%, what we are doing outside of the POS rental business. The third component is what we do on the DPI side. On the DPI side, when it comes to fintech infra, we continue to power a humongous amount of payment volumes when it comes to bill payments. We are powering many API-based transactions for consumer identity. We, in this case, get paid by the API ping, or we do get paid by the number of transactions there. And finally, on the issuing side, we are one of the global leaders when it comes to prepaid issuing processing, both in terms of prepaid as well as gift cards. We are doing a lot of work on the credit card side.
We are doing a lot of work on credit link UPI. So that's what we typically do. I just wanted to cover it. These two slides will typically be then all my opening introductions. Going into this quarter and what we are doing as in terms of the results for Q2, we actually came in with record-breaking numbers on all fronts. By the way, I have to tell you this. If I'm not mistaken, over the last six quarters, we have generally come in with record-breaking numbers when it comes to revenues, when it comes to contribution margin. Our revenues grew by about 18%, and we hit a number of about INR 650 crores. I want to again remind this because I have seen some analyst reports where I think there is some sort of a disconnect. We continue to record our revenues on a net basis.
What I mean by that is we do not include, sorry, we take out the payment processing cost, and we only record the net numbers, and hence what we call as net revenues, or globally, this generally gets called as adjusted revenues. And that's where we came in at about INR 650 crores because we've taken out anything related to pass-through revenues there. Second, interestingly, contribution margin grew at 21%. So how does this happen when the revenues are growing by 18% while contribution margin is growing by 21%? The reality on this is over the last two years, we've been working very hard that the subscription revenues that we earn largely remain on the software side, and we encourage banks and financial institutions and merchants to buy hardware on their own. Because of that, what happens is there is a lag effect out there.
So while revenues have grown 18%, contribution margin has actually grown by 21%. Now, that has multiple benefits, which Sameer will talk to you about. The adjusted EBITDA actually came in at 60% plus improvement on a year-on-year basis. We came in at about INR 122 crores of adjusted EBITDA. And what we have now been able to do is we have now been able to deliver back-to-back PAT of about INR 6 crores in our business. Now, this is coming on the backs of some solid performance. So on the platform side, we came very close to about $50 billion of GTV processed on our platform. One thing which is real is if Pine Labs is present with any merchant, any bank and financial institution, or any enterprise, we are choice number one. There is nobody who's beating us today. We are winning when it comes to the marketplace.
Even when it comes to the number of transactions, that was at about 1.9 billion. The total touch points reached about 1.9 million, and we've crossed the number of about a million merchants and corporates which are working with us. Net net, very, very powerful execution in seasonally weak quarter. The H1 is now past us. As you know, in quarter one, we came in at about INR 121 crores of adjusted EBITDA, adjusted only for ESOPs. And in this quarter, we have come in at INR 122 crores. Now, the seasonally strong quarters of Q3 and Q4 are starting off. I'm really looking forward to how this Q3 and Q4 goes. With that, I'm going to hand it over to Sameer for the next few slides.
Thank you, Amrish, and thank you everyone for joining in. I'll take forward from what Amrish was saying. The four pillars that we have continue to deliver stellar growth of almost 18% for this quarter. As Amrish said, we're reiterating again, we report our revenues net, which means that all network charges and other processing fees, et cetera, are netted off from revenues, and that's translating into a very high contribution margin of close to about 77%. Coming to contribution, if you see that this quarter, we have delivered a 21% year-on-year growth on the contribution side, and some of that is largely driven by our conscious strategy to build on certain high-quality, high-value tech-based revenues and slightly lower the take on the hardware sales that is a component of our top line. Overall, as Amrish said earlier, there is a seasonality element to our revenues.
However, this quarter, despite being a non-seasonal quarter, we have reported a 9% growth over the peak of last year's full quarter and also a 64% growth on a two-year basis. Coming to some specifics, some of our new business initiatives, like the issuing and the VAT side, have delivered a 30% plus growth margin, and our international business, which is seeing a lot of traction, where we earn in dollars for almost every transaction that we do across Southeast Asia, Australia, UAE, and the U.S., continued its growth momentum, registering a year-on-year growth of close to about 30%. Again, reiterating, our POS-based revenues, which is driven by subscription, is about 29%, and 71% comes from SaaS and tech-based services. Coming to adjusted EBITDA, our adjusted EBITDA grew at about 3.4x the growth rate of revenues.
That is about 64% year-on-year, registering a margin expansion of 500 basis points from about 14% a year back to 19% this quarter. In fact, even on an H1 basis, on our total basis, our adjusted EBITDA is about 50%. This expansion is led by our conscious strategy to improve our value-added tech-based businesses and drive productivity gains at scale. We do believe that these margins are sustainable and can expand as businesses build scale. Similar flow-through has happened at the PAT level as well, where we have delivered two quarters of consecutive positive PAT. The operating leverage is clearly visible. And this quarter, we have reported a PAT of INR six crores, which against a loss of INR 32 crores reported a year back.
Coming to some of the levers which have been driving operating leverage, over the years, we have been able to demonstrate revenue growth without a significant increase in headcount or employee cost. This has been achieved through a conscious effort to drive productivity through use of AI and operational efficiencies. This is also now reflecting in our ratios, as employee cost as a percentage to top line has significantly come down to 37% for this quarter versus almost 50% two years back. Our overall headcount also has marginally increased by only 6%, which is at about 4,500. Our tech, engineering, and product team is roughly about 1,000 people strong. And we do not expect any significant headcount increase as we scale our businesses across all the four pillars.
Our operational team remains at the same headcount level, which is a validation of the operational efficiency that we are able to bring in. ESOPs is an important component of compensation for our employees. As we step into the public markets, we have taken a conscious call to align ESOPs issuances through shareholder value creation, which also helps value for all shareholders, including the employee ESOP shareholders. The new ESOPs are now done at FMV versus deep discount that was done earlier, and that is translated into a lower P&L impact. The overall effects of this change are reflected in our P&L, where ESOPs cost as a percentage of revenue has come down to about 4% from 7% a year back. Depreciation, I think we continue to win exciting mandates on the asset-light businesses. Few examples to just reiterate this point.
Emirates NBD, one of the largest banks in Dubai, has taken us as a tech platform provider for the acquiring merchant business across the entire Dubai, where we have zero CapEx deployment, but entirely our tech stack-led business growth. Similar arrangements are seen, for example, in GCash in the Philippines and CIMB in Malaysia. One of the largest banks in India is working with us now on us fully providing a tech stack versus a POS plus a tech kind of initiative, which is making our business more and more asset-like. As a consequence of all these conscious shifts, we have seen a significant reduction in the CapEx dependency of our business, which is also translated into a depreciation as a percentage of our revenues coming down from 12% of our top line to about 5% over the last few quarters. Going to the next slide.
I think this is an interesting slide where we thought, how should one look at our business from an operating leverage perspective? With scale and build-out of the tech-led high-margin businesses across India and international markets, we are definitely going to see operating leverage play out. We have built a small matrix to give you a better understanding. For every incremental contribution margin of about INR 100, we are going to see almost about 50-57, and we are giving a range of that getting translated into adjusted EBITDA. That is because on incremental contribution, our incremental employee cost will only be about 30% to 35% to 38%, including employee cost, the tech cost, et cetera. And obviously, the other infrastructure cost will be another about 9-12 bucks.
Therefore, a very high number of INR 50-INR 57 for every incremental INR 100 of contribution margin earned will flow through the adjusted EBITDA. Moving on to how it will translate to PBT. As I said earlier, the conscious strategy around the depreciation, CapEx, and ESOPs is also going to translate into a better flow-through to PBT. A similar four to six translation will happen from adjusted EBITDA to PBT, and there will be marginal savings across other expenses which are there, which means from the incremental contribution margin of INR 100, we can expect in a range of INR 45-INR 55 translating as a flow-through to PBT. As business builds operating leverage and scale, you'll see our profit and our EBITDA margins improve significantly from year on.
Coming to some specific business-related KPIs and how we look at how these are shaping up as we build into the quarters. Coming to the in-store business, Pine Labs is a market leader in the enterprise and the mid-market merchant segment who have very unique and complex needs and require a solutioning approach to build long-term sticky relationships. To give some examples, almost every hotel chain in India today trusts Pine Labs for its checkout experience as we have built deep integrations into their portfolio management ERPs, which help them provide seamless checkout experience for their guests. Large retailers trust us because we have helped them build and manage multiple banking relationships into a single POS with full flexibility while integrating multiple back-end ERPs to provide them periodic reconciliations and MIs.
This demonstrated mode has helped us expand our DCP footprint now to 1 million plus merchants, as Amrish was saying. It's a milestone, deployed across 1.9 DCPs, which is a growth of 19% on a year-on-year basis. Having said that, an interesting fact is that the potential is still highly untapped. Only one out of the four DCPs today actually are active on value-added services and affordability, which means there's a huge potential within our existing network to kind of scale up these businesses on basically because the same DCPs are the DCPs on which these rails run. Having said that, the overall in-store business is about 29% of our top line. The value-added services business continued to grow at a massive clip. We have grown our volumes at about 37% on a year-on-year basis.
This quarterly momentum is driven by a unique position to bring together 400 brands and almost about 40 credit institutions to our affordability platform. While we continue to see strong growth across consumer durables and the mobile segment, we are also seeing meaningful growth across new categories like automobiles, furniture, fashion, healthcare, and wellness. We continue to keep innovating in this space, and in this quarter, we have launched new products like offers on UPI and EMI World Pro. Having said this, we are also significantly scaling up our online platform gateway. Our online payment aggregator business has seen a 75% year-on-year growth with partnership with some of the largest e-commerce platforms now use the Pine Labs Plural gateway. This includes the likes of Myntra, Meesho, BigBasket, Swiggy, Lenskart, to name a few.
The fintech infrastructure business operates some of the best-in-class tech platforms across bill payments, UPI, and the Account Aggregator framework. We partner with some of the largest bill processing institutions across both ends of the spectrum, that is the biller operating unit and the consumer operating unit, making us probably the top two players in the segment. We also power digital KYC and customer validation for some of the largest financial services firms through the Account Aggregator framework. And our platform is operating at scale with this quarter about 275 million transactions processed in Q2 itself, which is an 80% growth year-on-year. Lastly, coming to our issuing and acquiring platform, we've seen some of the use cases that Anand presented earlier on in this presentation. It is one of the fastest growing segments within the payments industry at about 26%, and Pine Labs is a market leader in this segment.
Our overall volumes in this segment grew at about 25% to about INR 16,000 crores with an improving take rate. What differentiates Pine Labs in this segment is our ability to do deep integrations on workflows across multiple use cases of wallets, refunds, transit, and also partner brands, and we are using partnering with brands to also expand their distribution footprint. The India business within issuing grew at about 31%, powered by strong partnerships with top e-commerce companies and quick commerce companies in India. Our international business in this space also grew by about 35% year-on-year. We have built meaningful presence with key clients' wins across Australia, say, Woolworths in Australia, the Al-Futtaim Group in the UAE, CapitaLand in Southeast Asia are some of the large wins that we've had, which are kind of fueling this growth.
We have been able to establish strong use cases, and you have seen today Anand presented. Now, 18 airlines globally use Pine Labs as their trusted partner for their wallet business. We have a proven track record of winning and successfully implementing programs across international markets, and we remain extremely optimistic on the size and scale of this opportunity. With this, I kind of come to an end to our formal part of the presentation. We open up the floor now to the moderator to invite questions, and we're happy to take them.
Thank you, sir. We will now open the floor for a question and answer session. Participants are requested to use the raise hand option, and we will take your question one by one. We will wait for a few minutes to the question queue to assemble. We have our first question from Piran Engineer. Go Piran.
Hi, Piran. Go ahead, please.
Yeah, I'm unmuted now. Yeah, hi. Yeah, congrats on the quarter and the second quarter profit, and thanks for this detailed PPT. Just firstly, I wanted to understand in the INR 63,000 crore GTV in the VAS and affordability platform business, how much of that would be lending, and what else is there apart from lending in that?
So first of all, it's not lending. What we are doing out there is basically powering for affordability solutions where we don't take any balance sheet risk. We actually power for other banks and financial institutions on our platforms. In terms of GTV, I would say somewhere around one-third of the volumes would be coming out of affordability. Two-thirds of that will come out of the rest of the services. In the rest of the services, we have everything from classic aggregator-related revenues.
We have revenues which are related to UPI and any fees which we get on UPI transactions. We also have things like other fintech partnerships we might have in the market with some of the Q-commerce companies or some of the consumer fintech apps out there or Sodexo. And that would be all about two-thirds of the platform.
Got it. Okay, thanks, Amrish. And this one-third, which is the affordability bit of it, that would be the majority of the revenue from the INR 63,000 crore? I'm sure it would be one-third, two-thirds revenue split also.
No, it is actually, I would think that it is reversed, which is it would be somewhere between 50% to two-thirds of the revenues. That sort of a range it will be in.
Of the revenues from the VAS and affordability platform part of it, right? Not the...
That's correct. That's correct. That is correct.
Got it. Got it. Okay, fair enough. Secondly, your Plural business GTV, Sameer mentioned it grew 75%. Where exactly is that? Under which section is it put in?
That section falls under in-store and online, Piran, where we basically report two kinds of revenue streams, which is the subscription-based revenues which we earn on the POS devices and the online we earn as a percentage to the GTV done.
Got it. Got it. Okay. Okay, fair enough. Yeah, that was it from my end. Thank you and wish you all the best.
Thank you.
Participants are requested to mention your name and organization before asking your question. Our next question is from Mr. Keiur Kumar.
Go ahead, Keiur. Keiur, you are unmuted. You can go ahead with your question.
Hello. Am I audible now?
Yes. Yeah.
Congratulations on good sets of numbers, sir, and for the new tech development. So my question is from the 25% of the DCP contribution, which is coming from the VAS. So right now, we are including that the further development will happen through the VAS. So I just wanted to understand that this contribution will come from the chain businesses and all, right? So how is the TAM basically here? Because the machines and the POS will be also on the single merchant sides.
Yeah, you know, very interesting question. Your voice cracked a bit, but what I'm going to answer is if you actually look at our earnings release, we've actually come up with a new set of numbers so that it gives you more clarity.
What it says is that out of the 1.9 million touch points that we have in the market today, about 24%-25% of that has at least one of our services added on to those terminal platforms. So whether that be as an aggregator or DCC or affordability or any of the consumer apps. So only 25% of our terminals today are contributing to the value-added services which exist in our business. And that's the opportunity for us. You would also see over the last five quarters, that number has moved from 21% of the total DCP base to now 25% of the total DCP base. Having said that, on the other hand, when it comes to transaction value and volumes, that has grown by almost 37%, while the number of DCP has only increased from 21% to 24% across the entire DCP base. It's been explained well in the earnings report that we have sent out.
Okay. And another thing is, like in our gifting, the issuing, the acquiring platform, so it should be like it comes with the new logos and means onboarding and all the things, right? So if you can provide any quantitative number, like how is the per logo ticket size varying or means the coming from the revenue?
We haven't shared that information right now, and we're not in a position to share that. Just in terms of an understanding on that one is you could very well have a logo which could be a chain of 10 restaurants, but at the same time, you could also have a logo as big as something like a Meesho, which is actually a client of ours.
But you could have just two extremes of it, and the revenue expectation out of them could completely differ. And hence, we've not actually explained what is the per logo revenue for our issuing business.
Okay, got it, sir. But can you share like how many logos we have right now? I mean, you have a number to that one? I think we have multiple logos there. You must be having.
I think it's about 650 is what I would say as a highlight. Don't hold me to that. I'll get you more information.
Okay. And lastly, on the tech side, you have developed, sir, the Tap to Pay. So I understood from the RHP and all that, we were very aggressive for the payment gateway segments for our new vertical, right? And now your tech basically shifted that vertical entirely if we compare with the other players, right? So first thing, because this is like a new tech, how you are developing the security side, basically, because this feature unlocks very much of potentials for our business, but also enables the security sides? So how you are developing that thing? And on more level, you can explain about the GTM you are thinking right now for this tech.
Fundamentally, let's understand this piece that the technology required in the offline payments business is way more complex than what is required in the online payment side. As you know, over many, many years, we've invested into building out highly secure platforms when it comes to offline payments. When it comes to online payments, I would want to think that 90% of our technologies have been able to be reused on the online platform side.
Hence, we think our platform is as rugged as the platform that we have in the offline world. In terms of security, we follow the best standards which have been laid out there by governing bodies in terms of security only, but also in terms of what the local bodies and the local regulators have asked for. As far as GTM is concerned, as Sameer mentioned to you before, we have some great new logos already in place when it comes to online payments. We just announced some days back, Lenskart has already gone live with us on our platforms. Myntra is live with us. CRED is live. Apple resellers are with us. Samsung.com online is entirely with us. We are making tremendous progress in asset-like businesses. May that be on the bill payment side or may that be on the online payment side?
Okay, sir. And lastly, should we expect any upside on the headcount in the future?
See, you know, one of the things which we actually wanted to talk and I guess both Sameer and I forgot to mention out there is that in our company, we have totally about 1,000 engineers, technologists, and product managers in the company. I don't know why I would require more than 1,000 people on the engineering and technology and product side. So short answer on that one is the answer is no. The longer answer on that one is in the next quarter, we will actually talk about some of the AI-related initiatives that the company has taken up. Today, we believe 18% of all code which is being written in Pine Labs has been developed using AI. We are bringing a lot of AI on our customer services side.
We're bringing a lot of AI in terms of rewriting our legacy code on some of the platforms that we have out there. So the short answer is I don't think we are going to be requiring more headcount in our business. And that's the reason we wanted to very clearly show to you that for every rupee increase in the contribution margin, how will that flow through on the EBITDA and on the PAT side.
Thank you, sir. And all the best for the future.
Thank you.
Thank you. Our next question is from Mr. Arjun.
Go ahead.
Thanks for the opportunity. With respect to the value-added services part, out of INR 650 crores, 29% is POS. So within the digital infra space, out of INR 440 crores, the remaining around INR 251 crores would be the affordability and VAS revenue?
It will be affordability, VAS, and also the fintech infrastructure, Arjun. I think we combined three items in there, as you rightly said. In fact, four items. There will be the POS business. There will be the online business. There will be the affordability and VAS business and the fintech infrastructure business. So the POS machine, which is one of the four components within the digital infrastructure, is about 29% of our company.
Okay. So I was just trying to understand the take rate or realization in the affordability business, which used to be around 39 odd basis points. Now, out of this INR 440 crores and INR 63,000 crores of GTV, how the realization over here has been in the first half and how has it panned out in the festive season, October, November, etc.? And how much is the kind of traction after the GST cut, etc. in October, November?
How do you see this affordability and VAS business playing out on realization and the GTV? If you could give some color, it will be helpful. Yeah.
So the realization across the segments has been more or less constant. There may be slight change in the mix here and there. Like for example, UPI may go up where the yields are lower. But intra-segmental yields have remained fairly constant in line with what we have put out in the DRHP as well. As far as the traction post Q2 is concerned, I think as we said that the first two quarters are slightly muted. We've seen good response in the Diwali season where we have seen peak volumes come in. Obviously, as our next quarter results come in, you'll probably get a better clarity now the quarter is underway.
But yes, I think even in the first two quarters, we have seen meaningful traction. And that's why even in H1 versus H1 of last year, we have seen meaningful growth of our GTVs while take rates continue to remain at the same level.
Okay. So broadly, we can assume out of this INR 440 crores, around 250 odd crores should be your VAS affordability revenue from there.
Plus minus that range, yeah.
Okay. Okay. Fine. Okay. And could you give some idea on the market share that is there in this business because we also see competition getting into this? Yeah, we think getting into this space.
Yeah. Yeah. So in this space, look, I will say that for the longest time, we have been above 80% of the market share. We just did a recent report on that internally, not ready to be shared externally.
We continue to believe that we have about 80%-85% of the market share in this space.
Great. Sure. Thanks, Amrish. Thanks, Sameer. Thank you so much.
Thank you.
Thank you, Arjun.
Thank you. Participants are requested to mention your name and organization before asking your questions. Our next question is from Mr. Mitul Shah.
Hello, sir.
Hi, Mitul. Go on.
Congratulations. First of all, I'm from Ahmedabad. We have talked during our road show that I'll be there. And thank you for the wonderful, wonderful result. I was, I'm so happy to see you on this call. And you told me that you will provide the best of the disclosure, and you did it. So this is, you are the only company who has done the con call like this. So I'm really happy that I'm an investor as well as my fund is invested in yours.
Second, I want to understand. My question is QR-based payment system in China and everywhere I go, the QR-based payment system is taking over than the POS. Everywhere I'm going, I'm seeing that the trend. So how we, so POSs are fairly, you know, large contribution. So when we are shifting or how we are coping up with that, that is my basic question.
Mitul, I'll give you a very interesting fact, which again, I don't need to be disclosing out here, but I'll just share with you. Very interestingly, today on our terminal estate, almost 66% of all transactions on our terminal estate are actually QR-based transactions. So what we are getting to see is large merchants still are looking for having a screen at the checkout, both to publish the QR or to accept cards.
So in a very interesting manner, over the last two years, while we have seen the growth in our DCP on the business, our transaction mix has already changed where 66% or two-thirds of my transactions are today coming on the QR side. The other thing is how UPI and what UPI is going to do to our business. I've actually answered that in the earnings report. Mitul, I do remember having met up with you. I want to make another comment out here. In my personal CEO letter, I've actually talked about my experience of some of the questions I received in Ahmedabad and Rajkot. So have a look at my personal note also, which I sent out at the end of the quarter.
I'm so happy that you have remembered all those questions and you have written it. I'm really happy.
Thank you, Mitul. We'll talk later.
Yes, thank you.
Our next question is from Mr. Pranav.
Hi, Pranav.
Hello. Can you hear me?
Yeah, Pranav.
Thank you, operator. I'm Pranav Kshatriya from Emkay. My first question is, you know, I see a very strong growth in issuing and acquiring business, especially in the international geographies. And my understanding is that, you know, we possibly have a slightly inferior contribution margin in the international geographies. But it seems that despite that, the contribution margin for issuing and acquiring business has increased despite the strong growth. So how should we see this business panning out, you know, in three to five years' time? And what is your view on that?
So just to say, I think we have been making inroads into a lot of new countries because of the use cases that we have been mentioning, Pranav.
I think the take rates are slightly lower in the international business because, as we know, that our business is a take rate business which combines the work we do, not just on processing, but also distribution. We have a far stronger distribution presence in India, and therefore there is a slightly higher contribution from the distribution part of the business which comes in India. As we build our capabilities and we build scale across counters in the international geography, we should see some more take rates going up there. So I think intra-segmental take rates remain the same. It's just that our distribution strength is stronger in India, and therefore we get a little higher revenues in India.
What I'll add into this one is that over the last couple of years, one of the reasons why you were getting to see the India business a little bit muted when it comes to the prepaid side of the business was because there was an overhang related to GST and application of GST on gift cards. In January of this year, the Government of India clarified that gift cards do not attract GST. And because of that, what we have again started to see a lot of brands pushing out gift cards. Gift cards are being actually distributed at much aggressive levels. If you actually see the quarter-on-quarter between Q4 of last year and then Q1 and Q2 and the first half of the year, you would see that the India numbers have started to come in with significant year-on-year growth also on the prepaid issuing side.
Great. My second question is on the affordability side. In your letter, you mentioned that, you know, Q2 FY 2025 was an unusually strong quarter. But what I understand is that last year, actually, the entire festivity was in Q3 and Q2 was relatively quieter. So what is the disconnect? You know, just curious on that.
It was related to some one-off large deals which we had pulled together in Q1 and Q2. Look, one of the reasons why I did not specifically talk about it right now is because, honestly, our job as operators has to continue to power on and win market share as much as we can every year. But we just wanted to give a color because what could happen is people get fixated only on the number of year-on-year growth.
But we thought, let's just clarify that when you look at what is happening on the hardware and the reduction in hardware, contribution margin is growing at 21%, revenues are growing at 18%. And we had a little bit of a base effect which came from last year. And that was largely because of some lump sum business which came through both in Q1 and Q2, actually. You know, I personally believe that when you look at Q3 and Q4, the base effect would have gone away, what we had coming out of the last year when it was Q1 and Q2.
Okay. The second part of that question is on affordability, VAS, GTV. You know, there was a GST cut which happened, which sort of propelled, you know, some of the spends for TV. Was there some impact of that in Q2 because it came on 22nd of September? Should we see further acceleration in Q3 because of that?
So there was a marginal impact, but it was both positive and negative. So what happened is, as soon as our Honorable Prime Minister Modi Ji actually announced that the GST rates are going to get changed, we had almost 15 days of, you know, complete slowdown when it came to any purchases in the markets. And we had basically transaction volumes completely drop off. I think it was around 22nd of September when the new GST rates kicked in. So we had about eight days which came in. More or less, I would have said it would have netted off the spectacular rise that we had in the, sorry, netted off the drop we had in the early part of September.
As far as the Diwali season has, that is going into Q3, I wouldn't want to, you know, forecast anything on Q3 on this call, please.
Okay. Sure. Last question is on, you know, the devices business. If I back calculate according to your disclosures, the ARPU implied is around INR 336 for Q2, which is significantly lower than INR 380-odd, which was there for FY 2025. I mean, you did mention in the letter that, you know, you are deliberately moving away from the hardware-based deal to a software-based deal. So how should we sort of see this panning out in coming?
While I let the CFO answer this one, I just want to give one headline on that one is. That is the reason why even though we have 29% of our revenues, we have the take rate actually dropping, our contribution margin has gone up because what we are getting to see is much more of software-led sales happening when it comes to subscription revenues. While our take rate has gone down, our actually our contribution margin has gone up. Something you want to?
Yeah, I think, [we should have] covered it. As I said, Pranav, fair observation. That's the conscious call we are taking where we are, you know, we are taking care. We are basically, our headline revenues may look slightly muted because hardware is a bit lumpy, but it's a low-margin business. That lower take rate there has been compensated by the fact that our contribution margin has actually grown by 21% when revenues are about 18%. And that's a conscious part of our strategy.
Fair enough. Thank you so much for the opportunity and all the best for the future.
Thank you.
Thank you, Pranav.
Thank you. Our next question is from Mr. Srinivasan.
Hello?
Yes.
Am I audible, sir?
Very clearly. Go ahead, Srinivasan.
Yeah. Yeah. First of all, congratulations for the great set of numbers and especially, you know, second consecutive PAT positive this quarter. My question is about the operating leverage. You guided that INR 50-INR 57 EBITDA for every INR 100 contribution. So can you commit this for the next couple of quarters?
This is, I think, as a business, Srinivasan, the reason we have given this guidance is because we have been demonstrating how our operating leverage is playing out. So if you see, our top line has grown at about 20%-22%.
Our PAT-adjusted EBITDA margins from 22 have moved up to about from 9% to about 19%-20% already. We have given the structural reasons why you're seeing this operating leverage play out. Like we said, there is a focus on building value-added services, tech-based revenues, international revenues, which are high margin. We are seeing operating leverage come out of the employee cost with productivity gains ahead, headcount not increasing at the rate of revenue. Therefore, this is a structural way we are trying to break down our operating leverage to say that as a business moves on and builds scale, you should expect at least about in a range. That's why we have given a range that roughly about 50%-55% of our incremental contribution margin will fall through to adjusted EBITDA.
I'll just add one thing is we tried to be very careful by not trying to be aggressive in this projection that we have given out here. So yes, we do feel comfortable with what we have sent out there.
Okay. Thanks for that. And my next question is about the Tap to Pay Online that you demonstrated initially. Does this support all types of cards like RuPay, Mastercard, and also like RBI's two-factor authentication and iOS and Android? So does this support all these combinations?
I'll give you the answer on two parts. One, absolutely, it supports everything what you just talked about. But the second part of the conversation is you obviously have to go through certifications, getting approvals, and only then you can take it to GTM. All of that work is pending. We are taking this across many, many markets as we speak just now.
But that work is pending in terms of getting approvals and getting all the local testings done.
Okay. So I've already used this product in some other place. The problem that I used to see is always, you know, latency. Latency issues I see. You know, sometimes it fails. Merchant finds it difficult to roll back. You know, just wanted to tell you.
No, no, no. I want to clarify that, right? What you have seen as a product is where merchant is using his or her phone to receive card payment transaction. What we demonstrated is consumer is using his phone to make a payment to the merchant. It's a completely different product that we actually showed. So we are saying consumer is sitting at home. He is on an app, a food delivery app.
When it comes to a payment page, he just uses his card, taps on his own phone, and the transaction is getting initiated and completed. What you would have seen is where you're giving the card and tapping it on the merchant's phone, which is the other form factor.
I see. I see. Thanks for the clarification.
Thank you.
That's all from my side.
Thank you, Srinivasan.
Thank you. Participants are requested to mention your name and organization before asking your questions. Our next question is from Mr. Himanshu Taluja.
Hi sir. Congratulations on a great set of the numbers and also very good disclosures in the presentation. Just a one question at my end. Given you have a narrative to deliver a 20%-25% growth over the near to medium term. Probably, yeah, clearly VAS is showing and acquiring businesses and the affordability solutions are delivering you a growth of 30% range. It's just the POS business, which is expected to grow at 15%-18%. How will you build that narrative or what expectations do you have around the POS business, device businesses if you can just help us?
Yeah. So I think, look, the way we look at our POS businesses, our POS touchpoint actually helps us monetize and build on the various rails of the value-added and affordability business. So if you see the headline POS numbers, they have also grown at about 19%, where we are at about 1.9 across about 1 million merchants. So I think we have not seen a slowdown of growth there.
But clearly, the opportunity for us on the POS devices is to see how that 25% number keeps increasing because that drives the monetization of the value-added services that we have.
I just want to, Himanshu, just mention out here is when it comes to just sequential quarter on quarter, we have actually moved from 1.7 million deployments to about
1.9. That's 19% growth.
So it's about 1.9 is what we have been able to grow on that business. But as I told you, materially, what is going to make a difference for us from an earnings standpoint, material difference is actually going to come out of what's going to happen out of the 70%, 75% of the rest of the revenues that we are getting in the company.
Yeah, sure. Yeah. Thank you. Thanks a lot.
Thank you, Himanshu.
Thank you. Please note, we will be taking only three questions. Our next question is from Mr. Prakar Sharma.
Hi, Prakar.
Am I audible now?
Yes. Yes.
Thank you and congratulations. You know, it's been a great journey. And the best of luck. What I wanted to just ask you is if you could explain the seasonality on a 1Q to 2Q. I know it's not the best half for you. So if I look at your revenues between 1Q and 2Q, you have gone up by about 34 odd crores from INR 616 crores to INR 650 crores. Your contribution has actually gone up by INR 17 crores, which is about a 15% incremental contribution margin. And your EBITDA has gone up by just about one crore. So your margin has come down. So if you could just explain what is this seasonality.
I'm sorry, I got into numbers and maybe you don't need to clarify.
But Prakar, I'm going to be completely transparent with you. What that seasonality is between Q1 and Q2. Remember, I've been in payments for 25 years. I can't tell you what the seasonality is between a Q1 and a Q2. In fact, I would say that there are enough and more years on which Q2 is generally weaker than Q1. And that's largely because that's the rain period across the country. So I would say the seasonality in the payments and fintech business in general. I'll just bucket it into two parts. Q1 and Q2 would be weaker, and the stronger one would be a Q3 and Q4. [Foreign language] honestly [Foreign language] but between Q1 and Q2 what will be the seasonality break up you know.
Yeah, because I was just, you know, I know it's a small number. I was just inquisitive to see why have the margins actually come off sequentially, which is the point I was trying to just get to.
I think the margins, the EBITDA margins, are more or less on the same line, maybe plus one minus percent year or there. I think some small numbers change there, but largely on a trajectory that we are, Prakar. We are at a 19%-20% adjusted EBITDA margin.
Yeah, margin is very minuscule. I think less than 50 bp or 1% out there. But you know, I think more interestingly, going forward, Prakar, we have actually made it super clear for everybody to calculate, saying that if the Q3 and Q4 are going to be stronger, what does that mean from a PAT standpoint in the company.
Of course, of course, of course. And is there any, you know, color you can share on, you know, the affordability especially, you know, the support that.
Sorry, we lost you, Prakar. Prakar, we couldn't hear you. We just heard affordability.
It's yeah. Am I audible now?
Yes. Yeah. Yeah.
Okay. I was asking if you could throw some color on the affordability, you know, especially the EMI credit that is going through your pipes. How is that trending for you and for the market? And, you know, are you able to improve some sort of take rates on that side if you could?
So I think Sameer has already answered on that one. In terms of the overall transaction processing VAS and the affordability business, we believe that individual segments, the margins have remained same as what we had established earlier.
In terms of affordability numbers, as you can see, it's almost coming at about, sorry, the overall number has almost come in at about 35%-37% higher on a year-on-year basis. By the way, that's been the case for the last five years. So it's not that this number is entirely surprising where it is. I can only tell you that the, you know, the Diwali this year has been just stupendous, just an unbelievably strong Diwali we are at. But that will come in Q3.
Of course. Yeah. Yeah. This is perfect, and you know, best of luck to you and the entire team. Thank you so much.
Thank you very much, sir.
Thank you. Our next question is from Mr. Navneet Singh.
Thank you for the opportunity. My voice is audible?
Yes, Navneet, go ahead, please.
I have a couple of questions. One question pertaining to IPO. So as per the last private funding round, Pine Labs was valued approximately $5 billion around three years ago. IPO has happened at around $3 billion. So what has happened that led to a fall in its valuation?
[Foreign language]
Alright, no issue. Another question. So, there are a lot of listed players and some of the competitors of Pine Labs about to go in IPO. So, what edge does Pine Labs have compared to these competitors? These competitors are aggressive and they may trigger certain price war and margin hit. So, what is your strategy around these?
Navneet, you know, it's not good to, you know, speculate about what competition is going to do. I think one of the things I tried to show out there is we continue to win on all sectors. We continue to grow our platforms very well. I don't think so. I am too much worried about protecting my business and growing my business. So, feel very comfortable. Thank you.
All right. Okay, some of the callers on the revenue growth for Pine Labs and its subsidiary for the next financial year?
We can't make forward-looking projections on this. I think this call is restricted more to how this quarter is perform. So, that, that data is there in the data gift shed, of course.
All right, got it. One trivial question related to the product that demonstrated at the beginning of this call, that Tap to Pay feature. So, is this feature require a separate app to be installed on the consumer device?
No, it does not. No, it does not. It's an SDK, which will go into the app of the consumer internet company.
Understood, understood. Thank you. Thank you. That is all from my end and all the best for next quarter.
Thank you.
Thank you, Navneet.
We will just take one last question. Kush, Kush Shyam, Mister Kush Shyam, go ahead and then we will wrap it up.
Yeah, am I audible?
Yes, you are.
Yes, sir. So, my congratulations for the good set of numbers. My first question would be, what would be the monthly fee for the POS device you charge?
As we have said early on the call, by one of the condition, it's in the range of about. It's a blended range of about INR 350 to about INR 380. And that range kind of splits depending on whether how much of hardware and component is there in it.
Okay, perfect. And the second question would be, what would be the [audio distortion] software as a side? How we are different from the competitor? Because the adoption, the product development, [Foreign language] how we are the different from the competitor side?
So, well, the answer on that one is, it's exactly as different as the Apple software is compared to the Android software. [Foreign language]
[Foreign language]
[Foreign language] . What we do is premium in what we do. We are very proud of the technology that we built over the years. And the kind of ease of use, the reporting, settlement, security, and ease of configurations, and existing pipes and integrations that we have. It's a fairly complex and well developed platform. It's a full ecosystem which we have built out there.
So, to time-wise, how would the time-wise compare to, meaning, quick commerce and the travel platform? So, we can go to market around Visa.
As we said on the call, each of the segments, top players are already our partners. Navneet, so basically, if you see the top three quick commerce companies work with us across some of our businesses, the top retailers work with us, the top banks work with us, top petroleum companies. So, I think we are playing across an entire ecosystem of the payment space across merchants, brands and enterprises. And I think our product stack, our DNA as a tech-first fintech, helps us kind of build deep integrations, create value-added services and be relevant to them in their journey of growth. I think that is our economy. That's a moat which we have been able to live up to and we have seen our business grow within that [goal].
Okay, perfect. And, and, on expense side, I want to ask a question that how much would be the expense that would go forward, [Foreign language ].
I think we have guided on our presentation on where we stand today. I think more or less, we should be in the range of about 4%-6% of top line and trending slightly downward as we go into the amortization of the existing ESOPs.
Okay consolidated [Foreign language]
Or, it will keep going down. Obviously, we have made some new issuances. That's why there is some upfront in Q1, but as a direction, you should see the ESOPs was going down.
Okay, my last question would be the gifting side at Qwikcilver. So what would be the time of a gifting in India? So that we can gauge a market size. In India we do business as a business.
Or, so I think we had our partner, technical partner Redseer, which is given a very detailed assessment of the size of each of the segments, not just in India but across the globe. I think in, in the, especially the markets we operate. Kush, so if you could, if you can look at those, then we will be able to, you know, get a deeper sense on that. I think all of that is covered in our DRHP, which we put out just a few months back. RHP, which we put out a few months back.
Okay, okay, perfect. So, perfect. Thank you so much.
Thank you so much. Thank you very much.
Thank you.
Thank you.
Thank you. That was the last question for today. With that, we conclude the Q&A session. I will now request Mr. Amrish to share his closing remarks before we end the call.
Thank you very much for doing this. Please take a minute to read the, you know, the note which I had put out there. We are back to work. Thank you for, thank you to all of you for having welcomed us on the public markets. This was our first, first earnings calls. You guys have been fairly kind with us in these questions. Also, we will learn, we will improve and we will keep giving you more disclosures. Thank you very much.
So, if you have any further questions or information, feel free to reach out to us in the investor relations email that we have put out at the end of the presentation. Thank you and have a good evening.
Thank you. You will now disconnect your lines. Thank you everyone for joining us today. Have a great evening.