I think we can start. Let's get started. I think we have enough attendees.
Thank you. Hello, everyone. Welcome to the Pine Labs Limited Q1 FY 2027 earnings call. Please note all participant lines will be in the listen-only mode, and this call is being recorded. Joining us from the Pine Labs management team are Mr. Amrish Rau, CEO, and Mr. Sameer Kamath, Group CFO. The call will begin with opening remarks from Mr. Amrish Rau, including the business highlights and performance, followed by a Q and A session. Before we begin, please note that some of the statements made during 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 you're joining from a media organization, we request that you please disconnect.
To deck, Sameer. Deck.
Please reach out to the company's investor relations team for any questions. With that, I now hand the call over to Mr. Rau. Over to you, sir.
Thank you.
We can hear you, sir. Please go ahead.
Okay, great. Good morning, and thank you everyone for joining us early at the start of the day. Look, as you know, we released our Q2 results yesterday. I hope you all have had the time to look through that Q2 results. What I wanted to do is, before we take the Q and A and go into the financials and any questions around the financials, I just wanted to give a very quick overview of where the business is and what is happening in the marketplace, how are we thinking about it, what are we building towards, and what are we most excited about. Just to reiterate, obviously, I would first want to reiterate the vision of the company.
We've been pretty much consistent with our vision, where we think that we have an opportunity to build a world-class fintech coming out of India, coming out of the Asian markets, and we are building our products in that direction. These are the quick financials. We'll come back to it. At a very high level, what I would want to reiterate is another very strong, powerful performance. We came in at about 20% on a year-on-year growth. As you would know, we had guided to about a 21%-23% growth on a full year basis. We had also said that the Q1 generally would be on the lower end of it. We feel very, very comfortable with where we are.
When you look at our EBITDA, and you look at the adjusted EBITDA, on an adjusted EBITDA basis, you would see that we came in, again, with a very strong performance. I think there were some forward-looking investments that we made very early, and that just comes out of the confidence that we are getting to see in the market. I will go a little bit more deeper into what we are getting to see and why we think that it is time for us to invest early into that part of the business. On the PAT basis, we came in close to about INR 20 crores. If you actually look at the PBT number, the PBT number was quite interesting, and Sameer will go through that a little bit more in detail. As far as operating cash flow is concerned, we came in at about 16%.
We have guided to trying to keep this under the 15% range on a full year basis. There will be variance between various quarters. We again feel very, very comfortable with where we are when it comes to the operating cash flow and where we think the full year would go to. Net net summary on the financial side, very powerful performance, continue to execute in the field. Let me give you a little bit more deeper into what we are doing and how we are continuing to build. Remember, we are a tech company, and we continue to build new technology and new payment services. What I have out here is really the value chain of all the areas that we are currently operating in. What I have grayed out here, that is the payments infrastructure.
That is the payments rails that we have created, both in the online world as well as in the offline world. Both in the acceptance side, but also on the issuing side. As you know, in every transaction, there is somebody making the payment, somebody receiving the payment. Each of the areas, there's a lot of tech which has to be built. The entire world is changing when it comes to fintech and what it means in terms of tech architecture. We are continuously investing into building that technology capabilities out there. We continue to charge for payment acceptance, payment processing, and in many cases, for any issuance or credit issuance that we do using our tech platforms. Around it, comes the flow-based services.
On the flow-based services, what we basically do is we help brands, banks, financial institutions acquire new customers, convert those customers, engage with those customers. That's what we put under the flow-based services. Even in flow-based services, we are getting to see huge change in the marketplace. It's not just about EMI. There is EMI, there are offers, there are consumer communications which are happening at the point of purchases. We are getting to see a completely new range of fintechs, which are coming in wanting to address their consumer base at the point of purchase. We are enabling all of that on our platforms. Hence our flow-based income, flow-based transactions continue to rise steadily. We are taking the same playbook to international markets. Let me tell you this. In Malaysia, we have now become the single largest installment payments provider in that market.
Except for one large bank, we pretty much have about eight or nine banks where we are doing installment payment services in the Malaysian markets. We've replicated that in Singapore. We are about to launch all of those services in the Dubai markets, too. Our abilities to take our tech stack, take our flow-based capabilities into international markets, that is going extremely well. I feel very comfortable that we are making progress from a technology layer standpoint, architecture, and also from a distribution standpoint. Purely in terms of what we are doing on the AI side, in terms of the products that we are releasing in the market, and these are all completely new products, is we've actually now signed up with six banks and NBFCs doing what we call a SignalIQ.
What SignalIQ does is it allows banks to interrogate their data, interrogate the consumer's data, and then look for signals and information in the consumer's data so that they can underwrite that consumer better. One of the things I've talked for many years is the future of payments is not going to be only in terms of money movement, but also in terms of data movement. Payments and data is something that we've been investing into. Second piece is, as you would know, NPCI has been promoting credit on UPI. We have a full tech stack on credit on UPI in place. We actually have a bank which has gone live with us, which is J&K Bank on credit on UPI. We continue to expand into that area. Third, as I told you, the EMI product is going global.
Fourth, what has now started to become fairly significant in our revenue stream on a full year basis is we are actually working with brands and working with large enterprises so that we can give them insights about what is happening in their stores, in their businesses, what kind of transaction and what kind of consumers are coming to us. We built out an entire tech platform around what we call as GrowthHub, and that revenues has now started to become fairly interesting for us, and we have continued to invest into that area. The other piece, which I do want to talk about, is what is happening on the AI front. On the AI front, actually, we've published information out there. One, at least four divisions of Pine Labs, 90% of all new code which is being written has been written using AI.
That's one piece to know. Second is, obviously in our call center and back offices, we are using AI fairly aggressively, and what we have been able to do is we've been able to drive efficiency out of it. For me, the most interesting part is we were the first payments company in India to deliver an end-to-end agentic payment transaction. We actually demonstrated that when we brought in the analysts and investors on our investor day. What we really did was we actually had a buyer agent, a seller agent, both communicating with each other. We used the UPI mandate capabilities below it, and an entirely agentic payment transaction was completed. As we speak, we are seeing great demand in the Indian market, especially on the agentic payment side. A flow-on of that is actually being seen in our online business.
Our online business, which is very closely associated with what's happening on the agentic front, is getting a lot of traction in the market. As you know, in the online space, already there has been a consolidation, and more and more merchants are looking for options and looking for other partners out there. We've actually gone live with some very interesting brand, which I have mentioned out there on the right. We went live with IRCTC. We are already doing huge amount of transaction for Zepto, Croma, Reliance Digital. We actually went live with transactions on lenskart.com. Very interesting brand out there. lenskart.com has been our client for a long time on the offline side. We actually have now gone with them on the online front. We think online and what is going to come around agentic payments is going to be very interesting for Pine Labs.
Our revenues in that business has continued to grow for a long period of time over the last three, four years. Coming to the offline side of the business, I wanted to give a little bit more insight in terms of what is happening on the offline side of the business. Very interestingly, what I wanted to share with you is that almost 70% of all transactions on our offline POS today is actually on UPI, and that number continues to increase. What I also want to share, very interesting, with you is the average ticket size of UPI on our platform is now north of INR 1,400. We are getting to see premiumization of payment happening. What that means is merchant also wants a premium experience when it comes to UPI. Merchants are also going for a screen-based device when it comes to UPI transactions.
That whole conversation where, what will happen when UPI come through, that has already happened. We are already at 70%+ of only UPI transactions on our offline POS devices. That's one. The second thing, what we are getting to see is more and more merchants are actually looking for a full big screen device, not just for ordering, but also for payment transaction completion. We've now partnered with various players on that, invoicing software, ordering software, that's something that we are finding as a very interesting new opportunity. The second piece what I wanted to call out here is the complexity of payment transaction is continuing to increase. We are getting to see even a mid-market merchant asking for complex integration where payments become part of their workflow. That is an area that we feel is our sweet spot.
We will continue to work in that area, we'll continue to win in that space. The last part out here, what I wanted to just very quickly cover is we do believe Apple Pay will enter the market before the end of this year. What that is going to do is going to give a flip and is also going to create a spread in terms of how payment transactions will happen. More and more payment transactions will go back to credit card. As credit card plus UPI continues to grow in the market, credit card transactions will be again back in the field. We are already getting to see there's almost 10%-15% growth in credit card payment transactions in the market.
We think that that is very good for somebody like us because more diversified the payment types, the more powerful the payment stack of Pine Labs. We are feeling that the market opportunity is looking real. Before I stop, I just want to give you a feeling of what's happening in the market. What we are getting to see is more and more merchants are actually keen on bringing in digitization in their stores, they are actually calling Pine Labs in, and over the last six months, we've actually invested in 500 new enterprise salespeople in the company. Just the way the market works for us is, as you invest into salespeople, about six, nine, 12 months after that, their full productivity starts to come through. We've gone ahead and front-loaded our investments in salespeople.
We also front-loaded some of the investments that we had to do in terms of telecom infrastructure, network infrastructure, and also some cloud capabilities on our side. That has impacted our EBITDA slightly. We will happily go through that and discuss that when we walk through some of the questions. With that, I'm going to stop and take any questions which might be out there.
Thank you, sir. Ladies and gentlemen, if you wish to ask a question, you may click on the Raise Hand button from the bottom toolbar of your screen. The operator will announce your turn. We will wait for a moment while the question queue assembles. We have a question from Pranav Kshatriya of Emkay Global. Please go ahead.
Yeah. Hi. Thank you for the opportunity. My first question is regarding Issuing and Acquiring platform contribution margin. That seemed to have dipped sharply. There is a commentary in your deck which says that the growth in distribution is higher than the processing, and that is the reason for the contribution margin has gone down. I just want to know how should we think about it, first of all, that also corroborates with the international growing faster. Should we see this kind of growth continuing and hence margins coming down? My understanding is that processing has a much higher margin than distribution, and hence, if the distribution continues to grow faster, then the margin would sort of trend down, at least at the contribution margin. Want some color on that.
Pranav, all that you said, fairly correct. Let me give you a little bit of a background in terms of how we are looking at it and what we are trying to do associated with it. I'm just going to use this brand name out here, not being very specific, right? Let's say you're going into a market like Singapore and you want to play onto the closed loop prepaid side. One of the lowest hanging fruit out there is around distribution, and if you can get in on distribution, then go up the value chain onto the processing side, that is a good thing for us to do to establish ourselves in that market and then continue to expand from there. We have actually done that in many areas.
For example, we partnered with Amazon in Singapore when it comes to distribution services with Amazon. We partnered with one of the biggest restaurant chains in the U.S. for distribution services. We are now doing their entire processing services, too. It is much more of an entry strategy, and then as we establish ourselves, we then go into the processing side of it. Just to be very clear, we've actually been very proud of the fact that we keep our contribution margin extremely high. Just for fun sake is, I don't see any other company which is at about 72%, 73%, 75% when it comes to contribution margin. We do want to continue to remain in that space where we continue to have that contribution margin in that range.
I do see contribution margin in the second half of the year going higher, and there are two reasons for it, right? One, as the festive season starts, more processing will happen on our issuing side of the services. That's one. Second, what happens is our flow-based revenues will start to increase as an overall proportion of our business. Because of that, what you will get to see is the contribution margin will go higher. That's one part out of it. There's another part which I have not been calling out, but I do want to call this out, right? If you see, one of the things what has happened out there is I've been able to manage my depreciation line fairly aggressively over the last few years.
If you actually look at the last six quarters and you look at the depreciation line, when it comes to terminals, we've been able to keep it flat while we continue to grow. What that means is we are asking merchants to make upfront payments when it comes to partnering with Pine Labs. Generally, that upfront payments is where we are asking them to take the terminals and buy the terminals off us so that we don't take the inventory on our books. Obviously, what that means is some low-margin business starts to come into our revenue stream out there. I have to tell you, that solves for me two points, right? One, it solves the depreciation problem for me, but it also solves for me the attrition problem.
What happens on an attrition side is once the merchant has invested with Pine Labs early when it comes to the device, they don't actually change you midway, and they want to continue to work with you for a longer period of time. All of those things do come in and impact the contribution margin line. But I want to be very clear, I do believe that over, especially the last two quarters of this year, we do expect that the full-year contribution margin will again go back closer to the 73%-74% range.
Okay. Thank you. That's very helpful. Second question is on the international growth. If I look at your international business has grown on the Issuing and Acquiring side at 40-plus percentage. But overall growth is 21%. That implies that possibly DITP has seen some decline. Any color which you can throw on that?
Look, I do want to clarify, I would say about 20% of DITP kind of a revenue stream in that business. Sorry, when I say DITP, let me clarify. Classically, when we go outside of India, what we are not doing is we are not trying to invest into terminals and terminal deployments. What we want to do is we are saying, "We are a software provider. We are a tech provider. You go buy your own POS, but the software and the back-end processing technology that you require for that, please come to me." Again, giving a very specific example of GCash. Think of GCash as to be the biggest consumer payments company in Philippines. Think of it as to be the Paytm or the PhonePe of that market out there. Now, there, they used to be into QR payments.
They now want to go into full stack terminal-based deployments. In the last nine months, we've deployed 30,000 terminals with GCash, but all of them have been on software and transaction processing basis. We really don't do anything on the terminal side. I just want to clarify, we are continuing to be on the tech side and on the transaction side out there. Yes, you're right. In Q1 especially, we had some dip in transactions in the international markets. But as you know, we do have a significant business in UAE and Dubai. We have two large customers often in that market. But nothing which I would say structural or long-term. We continue to win many opportunities in global markets. I'm investing heavily there. I'll just give you some numbers. I've got a five people team in Australia.
We are doing a mega renegotiation in the Australian market as we speak. We have a five people team in the U.S. We signed up, as I told you, the biggest organized restaurant chain for processing services in that market. We just signed British Airways when it comes to gift card program. The entire gift card program from British Airways will now run on the Pine Labs stack when it gets implemented. Right now, we've just signed. I feel extremely comfortable with where that business is and how we'll be able to drive growth in that business.
Okay. My last question is on the Salesforce addition. You added 500- odd employee. Where should we sort of start seeing impact of that? Will it be largely on the devices side or gift card side or affordability?
As far as the issuing side and the prepaid gift card side of the business, we think we have a good enough a sales team in India. We are still investing into global markets and expanding in that global market. For example, we hired the sales leader for the Singapore market. There you should think about international markets. In India, when the 500 number is, we are seeing very big opportunity coming our way, both in terms of online payments and also on offline payments. We believe that more and more D2C internet merchants are looking for options out there. We are increasing the team on that front. We are also increasing the team when it comes to sheer deployments because we are already getting to see to the right level of per month sales number coming through.
Those 500 will be into offline merchant sales enterprise and similarly on the online side.
Okay. Thank you. That's it from my side.
Thanks, Pranav.
Thank you. Our next question is from Jayant Kharote of Axis Capital. Please go ahead.
Thank you for the opportunity, and congrats on meeting the growth guidance, Amrish, that we discussed in the last call. First question is on the EBITDA slight margin dip that we've had this quarter. I can see the data cloud and tech cost seems to have led this miss. If you can spend some time and help us understand where have you invested. Is this a cost-saving measure or is this a revenue driver? Second question is obviously now, how do we think of the next three quarters this cost is recurring? The worry is because of cloud costs going up globally after the AI rally, right? Is this recurring? Is this one time? Maybe you can shed some light on that.
I'll give you two specifics, I'll give you the numbers slightly lower so that I'm not misquoting on that one. One is, I would say about INR 10-12 crores that has been increased on our cloud cost on the quarterly basis. Similarly, on the network side, we had about a INR 10 crores increase on the network cost across the market. I think the network cost that we have, and that network cost actually goes into the contribution margin line. It does not go below the contribution margin line. The network cost from the contribution margin line, I do think that 50% of that will continue to recur as we go forward.
The reason behind it is as we went ahead and deployed in the petroleum segment, and we've continued to expand that to almost about 100,000 POS machine, network upgrade, SIM upgrade, those are the expenses that we had to take up out there. That was one piece. Second piece to it is, as you go into global markets also, network needs to be upgraded in those global markets. 50% of that cost, I do think will continue to be on the recurring side. When it comes to the pure cloud costs out there, we had already guided that cloud costs in general should grow by about 6% on a year-on-year basis. Again, out of the INR 10-12 crores where the cloud and the infra cost which has gone up, I would say about 25%-30% of that will continue to recur.
The rest of that seems to be like a one-time cost for us. We continue to work through those costing, managing those pricing, and try and keep that cost low. Maybe I should also share is that we did also sign a new multiyear contract on the cloud side, with one of the leading cloud providers in the world. We feel fairly comfortable that we have good pricing on the cloud infrastructure side, and some of these costs should not come back again.
I'll take some more points here, Jayant. I think in addition to what Amrish said, one of the things, as you would've seen, we put up in the deck as well, is we are making a lot of investments into AI, because today the plat surface is what merchants are looking at for digitizing more and more. We have actually landed up doing a lot of work on, for example, starting the trust-based enhanced services on AI, which is having self-healing terminals. All of this requires larger data packs, requires some bit of upgrade in terms of network, as Amrish said. Today, almost 50% of our terminals are self-healing, which means it drives merchant stickiness. Over a longer period of time, the amount of field force required to service those terminals, the TAT to recovery of those terminals, all of them will go down significantly.
We are also doing a lot of work of integrating some of our Play Store-related items so that all OEMs, whether they are from one machine or the other, they are all integrated to a certain platform. The way we are looking at this is these are upfront investments because today the device is also a platform for the merchant to render AI-based solutions. Bandwidth, both on our side, which is the infra for the AWS, Google Cloud, et cetera, and on the data side for the merchant, is what will drive long-term flow through revenues, better monetization, and also ability to serving better through actual ground level cost saving over the next few years. I think that is why we are making these upfront investments. Over the next few quarters, hopefully all of this should come to fruit.
Just to sort of reiterate the numbers thing, because we started on a weaker margin this year. Full year, we did 23 and a half last year on EBITDA margins. Are you guys confident to expand from there? Or maybe because you have given us a contribution range, you have given us a revenue range.
Super confident.
Would you want to give a range on the EBITDA margin as well?
I don't want to give a range on the EBITDA margin, but I don't see ourselves going below where we were last year for sure, without a doubt.
Great. Second question was on the OMC contracts. Have they started contributing to revenue fully? Is it captured in this quarter or is there more scale-up that we'll see?
Not yet. I do think that about 30%-35% will come in between Q2 and Q3. Sorry.
That's all right.
Let me clarify. If the contract, full term, we expect it to be INR 100, I do think we have captured 60%-70%. There is more to be captured, in the next quarter, in Q2 and Q3.
I think we are rolling out these terminals. We have rolled out about 90,000-100,000 terminals. As we said in the Q and A also, these are flow-through revenues. As you see the rollouts happen across all, you will see some of those opportunities play out to the full extent. I think we have captured a small portion of it now.
Great. Thank you. Again, once again, congrats on the revenue delivery over here. Thank you.
Thank you.
Thank you.
We now move to our next question from Vijit Jain of Citi. Please go ahead.
Yeah. Hi. Thanks for the opportunity.
Hi, Vijit.
Hi, Vijit. Go ahead. We can hear you.
Actually, Vijit, we can't hear you now.
Can you hear me now?
Yes.
Sorry about that. Yeah. My question was on the DITP segment. The GTV growth that you've reported in the quarter is 4% YOY. Based on your answer to Pranav's question, I'm guessing some part of that would be because of the international GTV. Could you tell me what was the India GTV growth rate in DITP?
Yeah. In DITP, the India growth rate was more in the region of about 20%-25%.
20, yeah.
when it comes to the DITP growth. The 4% GTV growth on a full year basis has largely been because of the bill payments business. As you know, on the bill payments business of ours, it is not an ad valorem pricing, it is a per transaction pricing that we do on the bill payment side, which we have under the Setu business. In that part of the business, we did have one of the clients move some transactions in-house. That is on the bill payment side, there has been a drop. Across board, when it comes to DITP, when it comes to online, when it comes to flow-based income, and on the issuing side, generally, all businesses have come in at about 20%-25% at the minimum, if not higher from there.
Got it. Thanks, Amrish. Amrish, my second question on, again, teeing off some of the earlier answers, on the cloud tech and data costs. You said a couple of things around connectivity costs, and investments, and then some investments in the cloud, et cetera, right? For the OMC business, I wanted to understand is, are some of these expenses for the full rollout, say 200,000 devices with OMCs, are all front-loaded and the device rollouts is what happens next, and monetization happens next? Or there will be cost increases similar to what we've seen here as you go from 100,000 to 200,000 devices? That's on the OMC side. I also wanted to just quickly check on the cloud cost. You said something along the lines of investment in terminal management system in the letter.
I wanted to understand if that is the Apple terminals switching from Android to iOS or something like that.
No, a couple of things. Let me start with the terminal management part earlier. One of the things that happens in the market, and just as an information to you is, let's say if you have a terminal provider, A, managing that estate of all those terminals from a central office, the software for that is generally being provided by A only. Same goes for B and C or whatever the terminal providers might be. We've actually come up with a technology where through a central infrastructure, we can manage all the various terminals out of one single platform. That's a technology services that we are not just using it in-house internally, but we are also taking it to banks and financial institutions because they also have a very complex web of various terminal services.
As we moved into that area, we basically had to push out some more of data and more capabilities onto the terminal network. That is what we have explained on the terminal management side out there. That's one part to it. As we have started to continue to use some of the AI services and token services, there has been some marginal increase on the cost related to cloud. That's on the cloud side. On the network side, we are in total looking to be about 125,000-130,000 terminals deployments is what we are looking for. As Sameer told you, about 90,000-100,000 has been completed. As we go from 100,000 to, let's say, 125,000-130,000, that sort of a range, that's the more network-related costs which will be coming through in our business. I don't see that to be any material insignificant.
Look, I think the bigger problem out here is on a quarterly basis and an adjusted EBITDA basis, let's say we come in at INR 126 crores. I would have loved for this to come in more in the region of about INR 140 crores, just in terms of that INR 14 crores out here. Every crore then starts to count. When you look at it from a materiality standpoint, I think it's still INR 1 crore, INR 2 crore, INR 3 crores here and there. We felt it is important to address it saying that there is no pricing pressure, there is no market dynamics, which is impacting our business. These are proactive investments that we are making. It does show up as instead of what should have been a INR 135 crores, INR 140 crores kind of a quarter is coming in at INR 126 crores.
That's why we've taken the pains to explain to where these costs have come in from.
Understood. No, super helpful there, Amrish. Just one last question from my side. On the affordability GTV, where would the growth have been in the quarter? Whatever you can tell me about how you're looking at demand and uptake for affordability in general in the second half of this calendar year.
Vijit, I'm going to apologize. I'm not going to be sharing the volume number. What I can share with you is that the affordability still continued to grow close to 20% on a year-on-year basis at a revenue level side. You have to remember that this was also one of the quarters where, in terms of electronics, mobile phones, there's been huge price ups in the markets. There have been supply chain disruptions out there and still coming through that. If you actually look at the entire gamut of various activities that we are doing, I think we have done fairly well and we've executed well in this quarter to get it close to about 20% growth on pure affordability.
I also want to share with you some more data points out there is we are getting to see some other revenue streams also getting to a meaningful level when it comes to the flow-based revenues out there. Over the next two quarters, what we would want to do is we'll start to share with you some more information on other revenue streams which are coming through on the flow-based, so that also can be exposed and can be sort of seen and addressed by the market.
Okay, got it. Super helpful. Thank you so much, Amrish. Really appreciate you taking the time. Thank you.
Thank you.
Thank you. Our next question is from Rahul Kumar of Vikarya. Please go ahead.
Hi. Can you help me understand the growth rates which you are observing, let's say in last two quarters on your core businesses, like your flow-based revenue? Your IAP side, your distribution is growing, but you would like processing also to pick up as you go along. The guidance you are targeting of FY 2021 to FY 2023, what kind of numbers you are making for these core businesses, which are higher margin and also basically Opportunity is quite large there. Can you give a sense of what rate you are running at right with the last two quarters on flow-based and where should it land to?
I don't want to talk into the future because that'll allude to me giving very specific guidance on various business lines, but I'll talk about a little bit into the past. On the past, what we are getting to see is when it comes to our terminal side of the business, the terminal side of the business has been growing in the 12%-15% range on a year-on-year basis. Our online and our bill payments business has generally trended to be growing at about 50% and higher. When it comes to our flow-based income and also the issuing side of the business, that businesses have trended to be somewhere in the 25% range and slightly more higher from there. That's been the historical number. I don't feel any difficulty in that historical number to continue for some period of time.
Right. In this IAP business Issuing and Acquiring Platform, this processing piece, do you expect it to also start growing quite well, or that's not necessarily the key lever for you to deliver on what you are aspiring for? Not in just one year, over time. Do you think the processing can become big for you, or this is more We will see how it goes, because your core focus is to get a distribution, right?
No. We see this as a part of the value chain. I'll give you an example. What we did was, all the various brands that we process for, we actually took those brands and now we have published it on Zepto and Blinkit as we speak. You can go to a Zepto or a Blinkit and actually order for a gift card. That's an initiative that we took it on our own because we felt that digital distribution through some of the digital channels is something that we are doing a decent job on. Distributing it directly to the corporates, again, something that we are doing. When it comes to close to home, we felt Blinkit and Zepto can do this. For us, the way we look at it is that if the distribution channels are not good, the processing transaction will get affected.
If you don't get more brands and don't give more choices to the clients out there by getting more brands to come in onto the gift card or the closed loop program out there, our distribution and uptake of gifting will get affected. We're actually doing a combination on both sides. We don't see this business separate to each other, We continue to focus on both those areas, especially in the Indian market.
Okay, great. The reason I asked this question was, if I look at the absolute level of contribution margin in rupees crore, that growth is lower in, say, this quarter, and even last quarter is softer compared to what you would aspire this to be at.
Going back to Pranav's first question, what we are getting to see, actually, from a historical point of view, the processing revenue growth has been fine. What we are getting to see is, especially in international market where we are starting with distribution first, I think that growth is coming in higher. That's the difference. Processing to processing, our growth rates have been fine when you look at it over a larger period of time over the last five years.
Okay, got it.
One thing I want to add out there is, see, today we talk everything in terms of processing only on the gift card side, the product stack is much more complex. There is a gift card, which is really, let's say, you have a brand like a Nykaa wanting to come up with a gift card to manage their clients' engagements, working capital. We also have a prepaid card where, for example, we have a Forex prepaid card, we have a general purpose prepaid card, where a consumer can have a prepaid card when they are traveling outside of the country, or we are getting to see many use cases where a consumer is coming up with a Visa, Mastercard, RuPay-branded prepaid card just for their general purchases, which could happen there. That's again, a segment that we are investing into.
You'll be surprised to know that we have a very large business when it comes to credit and what we do on the credit side when it comes to issuing. That's one of the business which is now present in almost about 20 countries globally. I don't think so we talk about it separately, but that business on a full year basis is almost now INR 100 crores of revenues purely on what we do on credit processing, both Issuing and Acquiring. It's a combination of three things that we do out there, not just gift card. I just took the opportunity to go a little bit deeper into it.
This is very helpful. I think mathematically, the question I'm trying to understand is if you look at the absolute contribution margin, which is about INR 125 crore, was about INR 130 crore last quarter. Growth of that number is a bit slower. Is it also there's some investments above the contribution line which are keeping that number lower? Or is this because I know the margin dilution because of the mix effect, but the absolute number itself is also not growing at a pace which you would aspire to. Is there an investment above that line item?
There is no investment out there. There is no marketing, quote-unquote, "investment" also coming in out there.
The only thing I would add here is when we go for distribution, there are three models of distribution we adopt. One is our own platform, which is the Google Marketplace, sorry, gift card marketplace, Woohoo. We also have taps with corporate. These are direct. We obviously work with other large marketplaces like a CRED, like a Amazon, for distributing, as Amrish said earlier. There we have listing fees. Listing fees obviously come as a part of direct cost there. I think the way you should look at it is distribution propels what we do for processing because we are on both sides of the business. It gives you furtherance on growth and volume and also relevance to the brand.
One thing is, below the contribution line item, any incremental processing we do, any incremental distribution we do, comes straight to the bottom line. Look at it from that perspective, that this actually helps fund the long-term growth of that business, and that's why these are necessary strategic investments, as Amrish mentioned at the beginning when Pranav asked about the rationale for doing this as well.
What I would suggest to you on that side of the business, now, one of the things that, Again, we don't give it out, we don't share that in detail yet in various parts. The EBITDA margin in that business is something that we are continuing to expand on a year-on-year basis.
Rahul, may we request you to return to the queue, please? There are several participants waiting for their turn. Thank you. We'll take our next question from Gaurav Rateria of Morgan Stanley. Please go ahead.
Hi. Thank you for taking my question. Many congratulations for acceleration in the top line. I have three questions. The first one, I just want a little bit of clarity on the movement in the contribution margin for the DITP segment. It has gone down from 84.4% last year, 1Q, to 81.7%. I just want to tie this up in the context of the comment that you have been making that the pricing power is returning in this market for players like us. While at the same time, our CM is kind of coming down. Is it primarily a mix shift issue towards the mid-market? How should we think about it?
Gaurav, thanks for that question. I sort of very quickly clarified that when Pranav asked me the question right up front is, what I mentioned out there. Just want to repeat it. On the terminal side, for the longest time, the only model that we used to have in Pine Labs was we used to actually take the devices on our books, and we used to basically charge the merchants on monthly fee as we provide our services and capabilities. As you know, over the last six quarter, what we have done is we've made a very conscious effort to make the business or the balance sheet lighter. One of the things what we have tried to do is we've tried to move the devices off our balance sheet, and we really have tried to maintain the depreciation line flat, an absolute number.
What that means is, I'll give you a very specific number that I would say about 25% of the deployments or 30% of the deployments that we are doing, what we tend to do is now we say, "Merchant, you go buy the device, or we will supply you the device so that we can support you the device, but you'll have to pay for it upfront then and there." As you know, that's a low margin business out there. We obviously earn for our tech capabilities, our software capabilities, and any of the flow-based revenues which comes on top of that. What that means is that's a low margin business which comes into our P&L, and that has impacted our contribution margin out there.
Gaurav, what you explained earlier on the network-
Network. Yeah.
Capacity is actually directly impacting that business, as we said. I think the large part of that is not a mix change within the business. It's a strategic conscious call, like Amrish said, driving stickiness for long-term flow and other base businesses and also some tech investments we made upfront. That's why it's in the broad range, but it's still at about 82%, which is quite high.
Got it. Second, on the IAP segment, India business has grown 24%. I understand that the growth is more skewed towards distribution, which basically means processing business may have grown slower. What are the various levers and headroom to drive acceleration in the domestic part of the processing business in India?
The processing business, as you would know, right now in India, every deal that we go in in the Indian market, we tend to win those deals in the Indian market, just full stop. That's just a reality of it, that we win every deal on the street, right? A large portion of our growth actually comes out of our existing customers, and that existing customer base continuing to increase. For example, addition of these brands that we are adding to our portfolio. For example, in Q1, I think we added about 10 new brands and new logos to our base. What we are getting to see is on two areas. One is what we are calling as open loop prepaid credit processing services, which we again combine it into the IAP business and the international markets and bringing on new brands on the international markets.
Those are the three areas that we are investing heavily into right now so that we can continue to drive growth on the processing side. What I can tell you is that if there is a new gift card program which is coming out in the market, there is an 85% chance, 90% chance that it'll be us which is driving that.
I think we've also added in our deck that there are two, three new segments for India, like gaming, employee benefits, et cetera.
Oh, yeah. Can I go into that? Sorry. I should have gone into that. On the pure distribution side, one of the things that we have clarified out there is we think that there is a huge opportunity where there is an in-app purchases which will happen, and these in-app purchases which will happen that can be bought on gift card. For example, if somebody is on Roblox and wants to make an in-app purchase in Roblox and Roblox gift card, it's something we are now distributing our platform. We think the entire legit gaming segment is a massive segment. We are investing into the distribution of that. That's point number one. Point number two is, we've said this before, and I'm happy to again clarify on that one, is we will launch a meal card program, a fuel card program.
We think what has come through in this budget gives a fillip to some of those services. By October, we will have a meal card and an expense card out there so that there is tax saving which will get created. Why we have a right to win on that one is we have all the grocery merchants, large number of food merchants, fuel merchants with us on our platforms today. We have one of the greatest issuing platform anywhere in the world. I think we have a right to win. We are doing work so that we can grow that piece. That's second. The third piece, what we are trying to do is we are coming up with direct-to-consumer play when it comes to some of these open loop prepaid cards. Bharat Yatra.
We are now distributing almost about 15,000 Bharat Yatra cards on a monthly basis, which is that NCMC metro-based cards. These are some of the specific activities that we are doing across board to continue driving growth in the IAP segment.
All right. Last question for Sameer. On the operating leverage, you have always mentioned that the 50%, 55% of your incremental CM flows through the adjusted EBITDA. Given that we have significantly up-fronted the investments in this particular year, should we think about this year to be slightly different than your regular year, or-
Not really. As we've said in the earlier questions as well, we remain confident on the range of contribution margin and also the EBITDA margin, and I think that flow-through will happen basis the broader direction that we've been given in the past about the flow-through. I think large part of this deviation you're seeing is largely because of the conscious up-fronted investment, which will bear fruit through the year.
Got it. Thank you very much. All the best.
Thank you. We take our next question from Preet Pitani from InCred AMC. Please go ahead.
Hi, Preet.
Thank you for the opportunity. Am I audible?
Yes. Go ahead, please.
First, on the international side, we mentioned that there are a few losses in the entity, that's why our tax rate is a little higher. Could you quantify the losses amount? What were the losses for this quarter, and what would be the losses for last full year? Also, if you could mention when do we expect that to be break-even?
We don't give out separate numbers for the quarter by each subsidiary, but directionally, let me tell you, we've basically given out a sense of how we look at the international business. We have businesses which have scaled up, like Malaysia, where we're working with some of all the largest banks. We've deepened our product stack. We're quite scalable. I think in those businesses where we are mature, we are projecting at a very healthy EBITDA and a contribution margin, and those are extremely profitable businesses. Few new geographies where we are making inroads, like Singapore, like Dubai, where we have feet on the ground. Business is scaling up. We have got some early wins, and we have got large contracts which are underway for execution. Those are geographies where conscious investments in people tech are there in lieu of the contracts that we've already won.
I believe over the next year or two years, we should start seeing break-evens in those businesses and then flow-through as well. As you all know that on a full year basis, we have guided for a comfortable 28%, 29% ETR, so to that, you can land up seeing this because I think a lot of those businesses where we can't absorb tax losses because of deferred tax not being recognized on individual loss entities, I think those will bear fruit.
You want to reiterate how much was the PBT and then the flow-through from PBT.
I think PBT was about INR 38 crores this year, and INR 20 crores. Our effective tax rate for this quarter is 46% because of the reason we have mentioned. Otherwise, I think on a full year basis, we are comfortable to be at about 29%-30% tax rate. Obviously it will gravitate more because obviously we have tax rates for various geographies. India, we continue to pay a 27.1% tax rate.
Sure. Thank you, sir. That was very helpful. My other question on the line of take rate. Last few quarters and few years, we see our take rate on all the segments of the business has been continuously declining. I know there is a separate reason for entire segment. For DITP, we are going into lower margin segment. On credit, on Issuing and Acquiring, we are doing international. Is there any bottom line take rate that we will not go beyond that, or this is the minimum take rate we would be charging? Something on the take rate basis.
Actually, Preet, across segments, we have seen our take rates actually being strong or growing. Whatever headline take rates you are able to calculate mathematically is more driven by a mix change. For example, in the flow business, it looks 28 basis points because of the mix between what we do with UPI, which has been growing affordability. If you look at the underlying take rates by each business, we've actually been strong or growing. Even in the DITP segment, we have held our take rates in terms of per pause calculations, as we have said and clarified on our earnings deck as well, that some of the additions on DCP for the OMC business have a flow-through revenue versus pure rental revenue. Mathematically, if you adjust for that, if you realize that the take rates are quite strong.
On the IAP business, we have been continuing to maintain a healthy take rate of 1.3%. I think whatever changes you're seeing on take rate are more arithmetic driven by a business mix, and that has been separately explained.
Thank you. Thank you so much, sir. That was very helpful. I'll join back in the queue.
Thank you.
Thank you. Our next question is from Siva B. of iThought PMS. Please go ahead.
Go ahead, Siva.
Siv-
Go ahead. Go ahead. We can hear you.
Yeah. Hi, Amrish. My first question is that, does Pine Labs earn anything at all from MDR, and if not, why so?
No, we do. That number has been gradually increasing over the last few quarters. That goes into what we call as a flow-based income, which is what we earn on the MDR and the aggregator side. We do run that, and that business has been increasing over the last few quarters.
Right. Could you maybe say what percentage of revenue MDR contributes as of now?
We haven't shared that in detail, but I also don't have it offhand to tell you right now.
Yeah, the growth rates in that segment are northward about 60%-70%, given the base effects. A lot of these new merchants in the mid-market, the online business, the DCC volume that we speak about, all of those businesses are monetizing GTV businesses on the rails we have created, which is pure MSF. Therefore, as you grow across the platform, as we go across the depth of what we do for merchants, you'll see that business contribute a bigger share of our top line going forward.
Understood. Yeah. Thank you for that. For our affordability segment, how does the income exactly flow to us? Is it like whenever I purchase a product using Pine Labs POS or EMI, we get a revenue? What if I use my credit card and then convert it to EMI on my personal banking app, do we still get anything from there?
No, we don't get. In the second scenario, we don't get anything out of it. In the first scenario, yes, we do get. The monetization is very simple. Basically three or four people which come together. There's a merchant, there is a brand, there is a consumer, and then there is obviously the terminal at the point of purchase. We get fees from all the various stakeholders. That's the income stream for us.
Thank you.
Got it.
We have time for one last question. That would be from Mr. Prakhar Sharma of Jefferies. Please go ahead.
Thank you, Amrish. Sorry, my voice is.
Yeah, we can hear you clearly, Prakhar. Go ahead.
Prakhar-
Sorry, you're mute.
We can hear you. Please go ahead.
You're on mute, Prakhar. You can maybe unmute. We can't hear you.
Yeah. Is it audible now?
Yes.
Yeah, Prakhar.
Great. Sorry for that. My question is basically on a couple of things. One is, when you look at from a issuing perspective and go towards distribution of cards, et cetera, is there a working capital intensity goes up? Do you have to carry value of goods on your balance sheet? How's the cash intensity? That's the first part.
Prakhar, that's a good question. I want to clarify this again and again. That's not a model that we follow. What we don't like to do is we don't like to use our balance sheet to drive revenues in the business. By the way, that model totally exists. It's not that the model does not exist in the marketplace. We think our revenues can scale further if we get into that. For example, what you could do is, let's say you go to a brand and tell a brand, saying that, "I'll pre-purchase for you. I'm just saying $100 worth of your inventory or your cards, and effectively then sell it over the next three months. You give me a higher rate of discount." That becomes a very complex area. It starts to almost become like a lending kind of a business.
We don't like to do that. It's not in our operating model.
Just to also add, Prakhar, a lot
Sorry, one more thing. What we have in fact done with most of our brand partners is, as soon as a customer buys a product, we basically create the inventory of the card on a processing side at that instance. What happens is there is no inventory which actually comes to our books or flows through our books. Brands love that. This is the kind of technology capabilities that we have built. The reason why we win in the market, it's not just about physical distribution, it's about what is the tech platform you've created, what is the workflows that you've created, how you are actually managing the finances for the brands also. Those are the things that we win on. We are not that whole classic distribution play.
I'll give you another example is, many cases what we do is we go and tell the brand, saying that, "Managing distribution is so complex. Let us be your distribution platform at a technology level. Even if you distribute through somebody else onto, let's say, a gifter, you still use my tech platform to do your distribution capabilities. Maybe I don't get to enjoy the benefits of the margin related to distribution, but my tech platform is being used.
Got it. Very quickly, how do you assess this thing? Slightly bit of a number discussion. Year-over-year, your issuing revenues have gone up by INR 56 crore approximately. Your contribution in that segment has gone up by INR 11 crore. There is a 20% incremental contribution margin that has come. How do you look at that?
Very simple, Prakhar. I think if you combine what we've been saying, is that especially in the international market, if you remember many quarters back, we said that we are the full stack play in India, why we have a 90%+ market share, because we have strong distribution and processing, and that's why brands come to us. If you remember some quarters back when we spoke about international business, we said that the best way to win large brands, and Amrish alluded to that earlier, is to win distribution. Historically, as we have said, even when our margins changed a bit, and directionally, we've been guiding that distribution business gives us the entry. They come at a lower margin because processing has almost 100% CM, distribution has about 30%-40% CM. It goes down.
I think as you go into some of these markets, I think these are market entry strategies. A large part of that distribution growth did come from international markets, where presence on the ground for new markets like Singapore, Malaysia, U.A.E., help us kind of get visibility, relevance with the brand. Therefore, I think these are investments which have helped us build longer term strategic depth in that business and also lead to processing income, where the contribution margins, even on incremental business, will start flowing through in the same level as the stock which is there right now.
Got it. Last part, you are clearly handling multiple balls, while delivering on revenues and committing on contribution margin expansion. I just wanted to reconfirm that this normalization of contribution margin doesn't dilute the working capital cycles of the company.
I think, look, Prakhar, we have demonstrated it in the full year of FY 2026 that we continue to maintain a tight working capital of about 30 into 60%. We have been given that as a tight guidance. We have also said that Q1 is typically when large payouts happen. We had called out those payments earlier as well, like employee payments, variable pays, certain advances that had to be paid for CapEx because of the supply chain. I think even despite all of that, we have come in at about 16%, and we remain confident on the full year's working capital guidance, number one. As far as ICB is concerned, or which is the early settlement is concerned, we've also given an explanation that there's a cyclicality because Q1 ramps up after a collection intensity of the Q3 coming into Q4.
I think on that basis, I don't believe that working capital should change because of some of these contribution-related changes.
Perfect. Thank you so much. Best wishes to all of you.
Thank you.
Thank you. Thanks, Prakhar.
Thank you. That was the last question. I hand the call back to Mr. Amrish Rau for closing comments.
I think I'm just going to reiterate the fact that the business seems to be trending very well. Quite happy to get to the 20% growth, I think we have room to continue to execute better to get to a higher number when it comes to revenue growth. Associated with that will then come through on the EBITDA growth side. We made some very specific comments about where we think EBITDA would be, or what the floor would be when it comes to EBITDA. The last piece will be, continue to build. We continue to build new technologies, new capabilities, go into new areas, release new products in the market. Quite comfortable in how much we are investing in the future, at the same time, driving revenue growth and EBITDA performance. Thank you very much. Look forward to speaking to you all more.
Thank you everyone. If there's any follow-up question, please do reach out to us at the investor relations deck. The email address and contact details are there. Thank you very much for joining us for the call today.
Thank you, members of the management. On behalf of the leadership team, I would like to thank you for your time and for your continued interest in Pine Labs. Should you have any follow-up queries that were not addressed, feel free to reach out to the investor relations team. Thank you, and have a good day. Goodbye.