One97 Communications Limited (PAYTM) Earnings Call Transcript & Summary

A warm welcome, everyone. Thank you for joining our earnings call for the quarter ended June 30, 2026. As always, we are going to do this earnings call with management videos switched on. We welcome attendees to ask questions with their videos on or off as they prefer. [Operator Instructions] Today from Paytm's management, we have with us Mr. Vijay Shekhar Sharma, Founder and CEO; Mr. Madhur Deora, President and Group CFO; and Mr. Anuj Mittal, Senior Vice President, Investor Relations. In today's call, some statements made may be forward-looking in nature. Actual events may differ materially from those anticipated in such forward-looking statements. This earnings call is scheduled for 45 minutes. A replay of the call and transcript will be made available on the company's IR website subsequently. I would now like to invite our Founder and CEO, Mr. Vijay Shekhar Sharma, to share his opening remarks. Over to you, Vish.

Thank you. Hello, everyone. It was quite a quarter, and I'm very happy that as a team that we've been able to execute so well, especially the consumer payment is something that is very close to me. And we are now, as you can see, we especially talked about, we are growing double the market share and we are growing double the market growth of the UPI market, which effectively means we are gaining market share. Even though the GMV market share is what is publicly talked about, but the number of transaction market share, we are actually going even further than that. So more retail customers are using us on higher frequency. And I personally carry a benchmark in my mind and that benchmark that I carried is about the, let's say, January 2024, as a milestone where we sort of went through a special situation. And I can happily tell you that we just crossed the January 2024, daily transacting users, daily active users or any other KPI that we could have kept. So the past is behind us, and now we are having cash in our hands and the aggression in our mind and body -- so going forward, special attention in an aggressive way, I would put the word, on consumer market acquisition or merchant acquisition, very clearly there. The best part is that we've learned our art of building the business, where you can say if I was to look at, let's say, how do you make a profitable and growing profit business, and we've been able to pull that up very, very well. Going forward, as you would have seen that our profitability increase, I would believe that I think we should be able to increase our profitability further consequent quarters right away onwards. And then obviously, the revenue growth will mean larger profit. And I'm saying it because we basically learned that we should not recklessly spend money on acquiring consumers or acquiring merchants if they are not monetizable. So we've been able to grow the market share with the discipline that we want a selective customer. We just don't want market share for the heck of it. We want monetization. And consumer monetization is something that we're very proud of. And like we talked about it last time, we are looking at monetization using wealth beyond our credit and other financial services that we talk about in which way. So if you were to look at a year forward, I think wealth will become our equity brokerage and mutual fund distribution, although we are not wealth, wealth in a traditional industry calls wealth, but we are talking about wealth as an overall internal bucket we put equity brokerage, mutual fund. This is one area that is very bright spot. I'm putting a lot of my attention there. Payment sort of the product market fit, consumer merchant both together, more aggressive growth. And credit, as you are aware, we are doing pretty good. I think there is no aggressive expense required rather there because it is running perfectly well. It will go towards wealth, which is where the aggression is required. Beyond that comes the most important and consequent technology of our time, and this is AI. So I'm currently working on business and revenue line items that are nonpayment, nonfinancial services. And I fundamentally believe that moving ahead of the optimization journey, we will start to see our revenue monetization journey of AI -- and I'm very extraordinarily happy that some of our products have started showing up a few lakhs of revenue, but it is important to know that we are going to, let's say, a couple of quarters later. I wish less than a year, I'm able to say this line item, which will anyways go into Commerce Cloud, the traditional erstwhile marketing cloud business that we used to have it in that line item. And that is the personally these 2 line items that I'm personally focused on. And thank you so much for all the support and guidance that you've always been with us in these journeys and days. I'm very happy to announce and you saw this that we are now joined by 3 more new independent Board Directors, new and attention towards technology, business, finance, globalization, everything is our best. So with this, we can start with the questions.

Thanks, Vijay. We will start our Q&A now. The first question is from Mr. Manish Adukia from Goldman Sachs, followed by Mr. Sachin Salgaonkar from Bank of America. Manish you may please go ahead.

Fantastic set of results. Congratulations on that. I wanted to delve a little bit deeper on the shareholder letter and some of the numbers and the results. Madhur, maybe the first question is to you. So on EBITDA margin, when you say that now you have higher visibility on the 15% to 20% margin number in the next 2 to 3 years, one, are you saying that you can get to that number sooner than what you had thought? And two, when you say higher margin in the long term, is there a theoretical number you have in mind? And how should we think about what that higher margin long term may look like? That's my first question, please.

Yes. I think at the core of it, Manish, the reason why we're saying what we're saying is that the revenue growth acceleration and the fact that indirect expenses are growing significantly slower than revenue growth. So that's what's giving us confidence to make both the statements that you pointed out, which is that we should be able to get to -- we have higher confidence of getting to that number and perhaps getting to it sooner. And we do think that AI structurally not only accelerates operating leverage, it also expands the opportunity for higher margins over time because you're just able to do more with less. And we have been able to deploy a huge number of applications and agents within our business, which are helping us become very efficient, and we have talked about that in one of the pages in the deck. So yes, we are seeing that both of those things are starting to come through.

Sure. Sorry. And my question, Madhur, also was in the long term, when you say higher margins, do you have like a theoretical number in mind as to where you can get to?

Yes. We aren't giving a number for that right now because as you know, it's a trade-off between just pursuing more growth and building an even larger business, which we absolutely think we have an opportunity to do in the areas that Vijay mentioned, and that will require investments. So it is -- but yes, structural margins for our business are significantly higher than the 15% to 20%, which we have said we will achieve in the near term.

Yes. So the thing is that we probably announced 8% of the margin this quarter. This is a ramp-up from here, it has to grow forward, forward. I know you were seeking a terminal number, and Madhur is saying that it is more than 15%, 16%. So the direction is that we are talking about higher profitability and high profit both together, while we are on the...

No, very clear. And maybe a follow-on on that one is when we think about growth, which you're saying Madhur has been accelerating and it's visible in the numbers as well with postpaid ramping up now, you've started onboarding online merchants from late last year. Consumer payments business is seeing market share gains, right? With all of these together, is there any hurdles or downside risk to revenue? So for example, this quarter, if you grew 28% Y-o-Y. Are there any downward pressure on revenues at all in the foreseeable future? I'm not asking for a number as to what you can grow to, but just trying to think that could the accelerated revenue growth momentum continue in the foreseeable future? Or are there any downside risk that we should be aware of?

I think the great thing about this growth that we are seeing is that it is in nearly every business. So we are seeing that in our payments to small merchants, payments to large merchants, consumer payments that you mentioned, seeing that in financial services. We're also seeing some of the smaller businesses growing very fast. You mentioned postpaid, which is a good example of that. So we're seeing that pretty much across the board. And we think having achieved this number, we should aim for even higher.

Very clear. My other question was actually on postpaid. Now you've qualitatively talked about the business doing well or ramping up in FY '28 being a year when it meaningfully adds to both revenue and EBITDA. But when I look at say earlier peak of postpaid, which was about INR 9,000 crores in 2023, right, where I'm guessing a lot lower than that number. Now again, directionally, is there any reason why the company should not be able to get to that number at some time in the future? I'm not asking for a time line, but maybe 3 years, 4 years, 5 years. Are there any hurdles for you to not get to that number? Or directionally, you are tracking to reach that number at some point in time? Your thoughts there would be helpful.

The market opportunity is massive. The customer love and product market fit for this product is excellent. It is really serving a need, and there's no reason why this journey should be any different. The only thing that I would add to that is that it took us about 4.5, 5 years last time to get to those numbers. Currently, we are tracking roughly twice as fast, which is I'm not saying that if it took us 5 years last year, it will take us 2.5 years. I'm not saying that. But currently, we're tracking twice as fast as you would expect that we are ramping up this product. This product is ramping up with old users, new users, everyone just really, really well.

Very clear. Just last question before I jump in the queue. Cash on the books, and thank you again for the color in the shareholder letter around cash in the books, very helpful. But is it to say that from a foreseeable future perspective, there are no large uses of cash either in terms of M&A or inorganic opportunity that you may look to deploy and you're happy to have the cash build up in the books? Your thoughts would be helpful.

100%. Cash is the spine and strength. I wish that we have INR 40,000 crores cash.

I would just add one thing that compared to when this discussion started a year ago, not only do we have the INR 13,500 crores of cash, we are now also adding a significant amount of cash. So I love the fact that we are free cash flow generating business.

Actually, were discussing some days back, and we see a stress in fintech ecosystem because either you go public and then you learn the new reasons for feeling uncomfortable or you in private round trying to find out what is the reason for you to do what you want to do. I think people should get further stressed, stressed, further discounted and that time, the cash and the equity would be cash is a more value.

So Manish we are adding cash to our balance sheet. We are also very actively looking for within the existing perimeter of what we do, what are good ROI ideas? So we have called out in the past that MTF has been a portion of our funds, very small percentage of our funds so far, which is giving us very good ROI. So within our existing business -- and I love that because it is a good ROI use of our cash and it also furthers our mission as a company in terms of serving our customers better. So we are continuously looking for more opportunities within the business, mostly organic, maybe a few inorganic if there's the right opportunity at the right valuation.

Thank you. As always, great chatting with both of you. Thanks, and all the best.

Thanks Manish. We will take the next question from Sachin Salgaonkar, followed by Vijit Jain from Citi.

Congrats management for a great set of numbers. I have 3 questions. Let me go one by one. First question, would love to get a bit more color in terms of how the loan book is moving? What is the mix between, let's say, a merchant loan and consumer loan? And any data points you could share in terms of merchant partners and how the growth is happening? And the second part of the same question is, Vijay, you did mention about equity and wealth management scaling. So any sense in terms of what is the mix today between lending and, let's say, wealth management and how that mix could change in future?

First of all, Sachin, I'd say most of our profit is made from merchant side. And consumer side, we are driving -- we have, by the way, grown now quarter-on-quarter. And I mean, the numbers which were flat or a little bit of flat and declining are significantly ramped up, and we have crossed year-on-year number, like I told you, 24 number for even consumer credit, if you will. But the intent here is that we have done all of it mostly without requiring any FLDG. So we sort of our distribution in the consumer side. But at the same point of time, the most of percentage is still 80-20 wise would be towards merchant side. Quality is good. That is why it is growing. In fact, there is much more interest from a number of partners, but we remain committed to remain purely distribution company, and we don't have interest to put a book on this business at all. And we have queued small finance bank and I would say, even the large banks are there now -- so a couple of large banks have not activated. So the partner-wise, we have more capital. And I would say more capital, meaning probably [ 4 to 6x ] more capital than we are disbursing right now. So that is not a limiting factor. Then comes the percentage between wealth and this. Oh my intention is that when I say this is my focus area, I'm trying to say what I'm trying to rejuvenate to a sizable number. And wealth is not a material number in these 2 numbers, if you were to ask me, and it is sizable, but not so sizable that I think we would start showing up. The good thing is that it shows up as a subsidiary, so people are able to see the P&L of that entity. It is there. And I do believe that there is an upside. MTF, we just found a secret in MTF. We got money, we got equity, we got equity capital. We got customers, the market needs it. So there is a product market fit. So Sachin, my intention, when I say I'm focusing, I probably am trying to discover the perfect product market fit among every other person. And in wealth, we seem to reaching that milestone. And after that, 4 more quarters and then you will see Said.

I just wanted to add one quick thing. You asked about number of lending partners. I want to take this opportunity to say that, that has been the key -- one of the key achievements last year. In both the merchant loan and personal loan, we are now at double-digit number of partners. And the partners who have joined more recently are also ramping up very well. So we have really good legs for the next several years.

My second question is a follow-up on your earlier answer in terms of margins. Let's say, the 8% margin goes to your 15% to 20% more like a medium-term target, what you guys have mentioned. That itself is a sort of a sharp improvement in margins. And what we saw, let's say, this quarter, there was roughly 9 percentage point improvement led by indirect cost on a Y-o-Y basis on margins. So the question out here is what are the primary drivers of margins going ahead? Is it a continued reduction in indirect cost because of the scale benefits? Is it some AI-led benefits? And if so, could you help us quantify on what the magnitude could be? Or is there a mix change, which is driving those margins?

It's actually -- I think all of those are similar points. At the core of it, we have a very fast-growing business with huge opportunities to expand for example, penetration of financial services, not to mention improved unit economics of the payments business. So we have a very fast-growing top line. And our indirect cost, structurally, there is operating leverage in the business and AI makes it even better. So what you will see is that indirect expenses as a percentage of revenue is going down. And the underlying reason for that is that indirect expenses is growing at a very slow pace, whereas revenues is growing at a very fast pace. I should mention that we continue to invest in areas that matter.

Yes. The cost of people has increased year-on-year that does not mean -- I mean, especially the expansion of merchants, expansion of consumer business, basically, AI is a distribution business. Let me use the Sachin as a metaphor of my learning of AI business, meaning when you have your financial services business powered by AI, the differentiation will be how many customers do you have and what you do with them. So monetizing -- so customer quality, monetization, monetization ability. These are the factors that multiply once you add the power of AI. So the gating condition of, I would say, harnessing power of AI is what distribution you're sitting at because nearly everybody could build what you build at a time like always. So here it is that we will continuously -- and I use the word aggressively continue to invest in consumer expansion, merchant expansion and expansion of financial services powered by AI stands for that our costs are dramatically optimized. One slide that I created, and we put it in the tweet also, I think, where I said that our merchant distribution in a way the small business merchant acquisition, is now governed by agent, where the person is identifying what our financial executives must do. This is all made in-house. And I have started to find out use cases of this going to the third-party customers also. So now you're seeing that we are flat. Practically, if you do not look at the cost of, I'd say, salespeople or marketing expense, then the organization is now flat or reducing costs quarter-on-quarter. Like I always said it. I mean, I remember that I think a couple of quarters back, it used to carry how many -- how much more saving you could see. I said this is always -- this is continuously. There is no special quarter special that we are trying to do in this quarter. And that you would have seen the trend is continuing. What we are saying is that there is a growth of revenue that is the magical part that we have started to. show in the Q1 of this financial year onwards. So you will see this revenue ramp-up, and that is why the margin growth is talking about.

Sorry just to add. My sort of favorite set of metrics to pull together for this conversation to what Vijay said is our marketing expense is up 27% year-on-year. Our sales and service cost investment is up 27% year-on-year. And our EBITDA margin adjusted for PIDF went from 1% to 8%. So we got a 7% EBITDA margin improvement not despite but in addition to the fact that we continue to make as much investment as we think makes sense.

7 percentage points.

7 percentage points.

And my last question is, I would love to actually understand your thoughts on UPI monetization. There are various media articles indicating that government might look to reconsider this. Certain articles are mentioning about 5 to 7 bps kind of take rate for larger merchants. If such a scenario arises, what kind of an incremental opportunity we are thinking from a Paytm point of view? And would be great if you could help us quantify or any directional data points and how we could quantify the upside for Paytm.

I don't have any clue of actually the number that it could be or not and what kind of line item it could be paid for. So we are trying to model it in-house ourselves based on newspaper and various other whisper in corridor, but we just said there is no materiality to it as a discussion when you don't know what the formula is. So we'll wait and watch Sachin.

So Vijay, just to reframe the question in slightly other words. Today, if I'm not wrong, you guys are looking to monetize some of the larger merchants on your platform. Would that materially change going ahead if this UPI monetization come? In other sense, is the upside meaningful to you guys if this comes up?

[Foreign Language]

We will take the next question from Vijit Jain from Citi, followed by Pranav Kshatriya from Emkay.

Can you hear me now? So congratulations. Great set of numbers here. I have 3 questions, one each on the consumer merchant side and then on AI. So maybe on the merchant side first. So in general, if you have merchants who've already upsold themselves into the financial services product or other products, so that relationship is stickier, right? There's a line in your letter, which I interpreted as that in certain cases with merchants, you're reducing your subscription rentals -- so shouldn't it be the other way around merchants who are using more than one service are already sticky? Why would you reduce their subscription ARPU?

[Foreign Language]

The second question on this was -- so in the letter, you guys say that the net payment margins went from 8.8 bps last year to 8.4%. This is excluding the PIDF incentives, right? Now I mean, in general, I see you talking about tailwinds in online payments, then you have some of these other core payment margin tailwinds as well. So I'm just trying to understand what would have -- is it basically just these lower device rentals Y-o-Y that would have contributed to this 8.8% going to 8.4%?

Yes. So I think you explained it in one of the questions in the back, and you're absolutely right. The payment processing margin, as we've discussed in the last few quarters, has been inching upwards gradually, but consistently every quarter. The impact that you're talking about is because of certain plans that we run for those merchants and highly engaged merchants. I should point out that we have mentioned elsewhere that we have tightened our revenue recognition policy on certain businesses a little bit. There is a slight impact of that, but most of it is the answer that we have given at the back of the document.

Got it. The second question I had was on the consumer.

[Foreign Language] Literally made it. If you don't get money by the month end, this is not a revenue recognized. Absolute everything is a future upside if you get it. So [Foreign Language]

Good to hear. My next question is on consumer franchise. So now you have postpaid that is scaling up. You have consumer loans, which is looking up versus last year and MTF is doing well. You've applied for wallet license. And I'm guessing because you said that last time, wallet plus postpaid will kick up postpaid even further. So in general, how would you say your consumer franchise in terms of monetization is looking like in FY '27? You have a guide -- I think, meaningfully better than 22% overall growth. I know merchant business, for example, is doing better than that. So in terms of the consumer franchise, what are we looking at this year, given all of these tailwinds in general?

[Foreign Language]

I'll just add one thing that. There are certain financial services -- consumer side financial services, which were slightly challenged because as you know, equity trading volumes went down a year ago. Until about 6 months ago, we were seeing headwinds in the personal loan business. And of course, we didn't have much of postpaid a couple of quarters ago. So now that these things are starting to turn around, we are seeing significant upside on the consumer side. So when we look at our LTV to CAC, that has grown meaningfully. And obviously, that is one of the reasons why we're making some investments on the consumer side over and above product, we're also investing more marketing.

Got it. And last question on AI. So AI wanted to understand how is AI helping you on merchant acquisition, onboarding, collection efficiencies? Is it making it measurably faster and so you're seeing better retention trends? Anything you can -- any detail you can share on that? And second, also, I see your cloud costs have come off Y-o-Y here. And I'm wondering if you were able to release some compute costs because you looked at -- you use AI or whatever else you use to figure out where you had scope for efficiencies. So just a little bit of color on how you're using AI on the productivity side beyond employee costs would be helpful.

Vijit, first of all, thank you. Somebody saw what I wish somebody would have saw and asked. I mean, you've heard that people are token mixing means so much of cost. My whole year cost became out of cost in the quarter, that kind of situation. We tune our own model, place on our own infra, and then run it. You must have heard this popular make this phone call for, let's say, collection or revisit or retention and so on. Now he took 200 billion parameter model, optimized it to 4 billion parameter model, made for languages, our own model. And then we place it on our own machine. And effectively, now you're talking about low latency, low cost of tokens, which is low inference cost run and operated by us. And that makes our cost even lesser than the typical company would have costed for themselves. So we removed the cost of call center. We removed the cost which otherwise we would have bought from outside, and we have optimized and a skill to us. Now this is the magic. And once we've done it, we'll sell it to outside people, why will we not sell it. So actually, I mean, I'm super excited about the kind of new nonpayment, nonfinancial services. I'm using the word as a description that they are not related to payment. They're not related to client services and they're perfectly completely AI in AI out services for our businesses and merchant partners. We've decided not to do AI for consumer as a all in bet, but we definitely have decided that we will go to the merchants and the businesses and the solutions and services that we created and we ourselves are the user of them. So these things will show up. And I'm glad that you looked at the computes cost. And I mean, to the credit of Madhur, he would negotiate it so hard that they will invite him as a CEO of Conclave elsewhere in the world, this is the most efficient cursors, CFO Counsel's, founding member, where the CFOs who bother about cost and productivity, they probably have 4, 5 people in the world.

Good to hear and congratulations for that, Madhur. Just one follow-up on that, and then I'll go back in the queue. The nonpayments, nonfinancial services, services you're talking about, these are AI services for smaller merchants, in the way that you described.

[Foreign Language] Small people, smaller businesses will take a different kind of service, larger ones will take a different kind of product.

Okay, good to hear. Thank you so much, and best of luck, you guys.

We will take the next question from Pranav Kshatriya, followed by Rahul Jain from Dolat Capital.

My first question is on the accelerating GMV trend. It was like 23-odd percent in Q3 went to 27% in Q4, now 31%. Any cuts you can provide that what is driving it? Because the letter actually says that there is offline is seeing strength, online is seeing strength. So what is exactly -- I mean, if you can give what is growing faster, I mean, related to each other? And secondly, in payment processing charges, are there any charges related to postpaid also sitting there because that saw a reasonably sharp jump on a quarter-on-quarter basis in this quarter?