PAYTM - One 97 Communications Limited Share Price

Management Outlook:
Paytm's management expressed a positive outlook, emphasizing sustainable growth in merchant-focused businesses, expansion in high-margin financial services, and disciplined cost management. They aim to achieve EBITDA profitability (before ESOP) in the near term, supported by improved payment margins, scaling lending operations, and steady revenue growth. International expansion (Middle East/Southeast Asia) is in early exploration, targeting merchant ecosystems.

Key Points:

1. GMV Growth: Merchant transactions (1,000 crore in Dec'24) drove growth, while consumer-side transactions remained flat.
2. RuPay Credit on UPI: Expected to boost payment margins (higher bps vs. bank-linked UPI) and enhance merchant-acquiring capabilities.
3. Lending Business:
   • Merchant Loans: ~80% disbursed via DLG (default loss guarantee) model with stable ECL (4.5-5.0%). Penetration aims to rise to 10-15% of merchants in 2-3 years.
   • Personal Loans: Recovery expected in FY26 with cautious credit underwriting.
   • Margins: Blended take rates improved (7-9%) due to trail revenue and DLG-driven collection efficiency.
4. Profitability: Contribution margins (50-55% ex-UPI incentives) stable; EBITDA breakeven (ex-UPI incentives) nearing. PAT profitability expected as depreciation/ESOP costs decline.
5. International Expansion: Exploring merchant payment/credit solutions in select markets (subsidiaries in Middle East/SE Asia), targeting B2B monetization with minimal upfront costs.
6. Device Strategy: Subscription revenue growth via merchant devices (soundboxes/POS), leveraging refurbished devices to reduce capex.
7. Consumer Growth: Organic, product-led reactivation (no heavy marketing) with focus on UPI market share recovery.
8. Cash Position: Over Rs.10,000 crore in India; international cash (post-PayPay stake sale) may be repatriated.

Focus Areas: Scaling financial services (especially lending), improving payment monetization (RuPay/UPI), and driving operating leverage.

Question 1: What percentage of Paytm's GMV transactions are merchant-side versus consumer-side, and how does this reconcile with UPI market share trends?
Answer: Merchant transactions were 1,000 crore (81% of total 1,232 crore transactions in Dec 2024). Merchant GMV grew YoY, while consumer-side transactions were flat/slightly declined. Paytm's QR/merchant presence aids consumer retention.

Question 2: How might RuPay on UPI adoption impact payment margins?
Answer: RuPay UPI offers incremental monetization via MDR (vs. bank-linked UPI). Acquiring-side margins are higher due to credit card-linked QR usage. Merchant QR visibility also drives consumer acquisition.

Question 3: Is ~80% of merchant loan disbursement via DLG (Digital Lending Guarantee) a steady-state mix?
Answer: Yes, ~80% of merchant loans are DLG-based. Paytm is indifferent to DLG/non-DLG mix; partner preferences drive the model. More lenders are showing interest in DLG.

Question 4: What is Paytm's international expansion strategy?
Answer: Focused on merchant-side solutions (payments, SME credit) leveraging existing tech. Subsidiaries in the Middle East/Southeast Asia will target B2B models, requiring minimal upfront investment (~Rs.20cr per market).

Question 5: How is Paytm measuring ECL (Expected Credit Loss), and why has it declined?
Answer: ECL is based on collection data. The decline reflects improved underwriting, collection efficiency, and stabilized merchant churn. DLG loans perform slightly better than non-DLG.

Question 6: What is Paytm's FLDG (First Loss Default Guarantee) exposure, and how is it accounted for?
Answer: FLDG costs are <5% of disbursals, booked upfront under "other direct expenses." Unutilized provisions are reversed later. Costs remain stable despite DLG growth.

Question 7: How many merchants have active loans, and what is the growth potential?
Answer: ~5"“6 lakh merchants (4"“5% of device base) have loans. Medium-term penetration could reach 10"“15%, driven by repeat borrowers, higher ticket sizes, and merchant-base expansion.

Question 8: Why does payment margin guidance (3+ bps) differ from calculations based on subscription revenue?
Answer: Rental income assumptions in the calculation were overstated. Subscription programs refund fees for high-volume merchants, balancing margins.

Question 9: Why does Paytm have inactive international subsidiaries?
Answer: Subsidiaries relate to legacy telecom services (non-Paytm). Rationalization is underway. New entities (Middle East/SE Asia) will focus on merchant solutions with low upfront costs.

Question 10: What are disbursement targets for merchant/personal loans in FY26?
Answer: Personal loans depend on credit cycles/lender caution. Merchant loans will grow steadily via penetration (targeting 10"“15% of merchants), higher ticket sizes, and repeat lending.

Question 11: Will personal loan disbursements recover in FY26?
Answer: Yes, assuming macro stability. New DLG partnerships and cautious credit underwriting will drive gradual recovery.

Question 12: Are non-lending financial products (e.g., mortgages) still planned?
Answer: No. Low margins and high CAC make them less viable vs. core offerings. Efforts are focused on scaling merchant/consumer lending and insurance.

Question 13: How will capex and depreciation trends evolve?
Answer: Capex remains below FY24 levels due to device-refurbishment programs. Depreciation will decline as FY24 capex rolls off, improving EBITDA.

Question 14: Why would lenders choose non-DLG models?
Answer: Partner discussions determine models. Some prefer non-DLG due to existing collection capabilities or risk appetite. Paytm prioritizes win-win partnerships over enforcing DLG.

Question 15: What is the plan for cash from PayPay stake sales?
Answer: Funds may remain overseas for expansion or repatriated to India. Tax implications are under review. Current liquidity (Rs.10,000cr+) reduces urgency.

Question 16: Where will contribution margins stabilize?
Answer: 50"“55% (ex-UPI incentives). DLG costs impacted recent margins, but trail revenue and stable FLDG costs will drive improvement.

Question 17: What drives financial services' non-lending revenue?
Answer: 10"“20% of financial services revenue comes from non-lending products (e.g., insurance, mutual funds). Focus on increasing product penetration (currently <1% of users).

Question 18: How does DLG book performance compare to non-DLG?
Answer: DLG loans perform better, with higher collection efficiency and lower ECL. Unit economics remain strong, supporting continued DLG adoption.

Question 19: What drives lender preference for collection vs. distribution-led personal loans?
Answer: Segments underwrite the model: distribution suits lenders with existing collection infrastructure; collection-led loans target efficiency. Paytm prioritizes margin-rich collection partnerships.

Question 20: What is the roadmap for UPI market share recovery?
Answer: Organic, product-led growth (vs. cashbacks). Features targeting retention/reactivation are prioritized. Regulatory clarity on new products is awaited.

Question 21: Will Paytm re-enter the wallet business post-Paytm Bank resolution?
Answer: Yes, pending final clarity on Paytm Bank's status. Relaunch plans are ready but hinge on regulatory outcomes.

Question 22: How is DLG growth funded, and should AUM replace disbursements as a metric?
Answer: Sourcing fees offset DLG costs upfront; trail revenue ensures profitability. Revenue per customer (vs. AUM) is a better indicator, given Paytm's distribution role.