PAYTM - One 97 Communications Limited Share Price

In the earnings call on May 6, 2025, management provided an optimistic outlook for Paytm, highlighting several key forward-looking points:

1. Adjusted EBITDA Break-even: Management announced achieving adjusted EBITDA break-even, which signals improved operational efficiency and profitability.

2. Growth in Merchant Lending: The merchant lending segment continues to show strong growth. Management noted that they are enhancing their partnerships with around 14 lending partners, focusing on a pure distribution model for personal loans, where lenders are responsible for their own collections.

3. Monetization of UPI: There are expectations for the introduction of MDR (Merchant Discount Rate) on UPI transactions for large merchants, which could significantly increase monetization opportunities. Management projected that this monetization could happen soon, although they did not specify exact timelines.

4. User Base Goals: The management aims to grow the consumer base to about 200-250 million highly engaged users on the platform, emphasizing product development over aggressive marketing spending.

5. Revenue Growth Projections: For the next year, management reaffirms a growth target of approximately 30-35% for the top line, with an EBITDA margin goal of around 15-20% in the medium term.

6. Impact of AI on Cost Reduction: Management highlighted that the implementation of AI has led to significant cost efficiencies, particularly in non-sales employee costs, which they expect to continue to improve over time.

7. Future on DLG (Direct Lending Guarantee): Management indicated plans to maintain partnerships on DLG but noted that the margins and performance would largely depend on market conditions.

In summary, management remains optimistic about Paytm's growth potential, focusing on enhancing the merchant side of the business, user engagement, and leveraging technological improvements for cost efficiency.

Major Questions and Answers from the Earnings Transcript

Question 1: "Should we continue to see this kind of a trend in personal loan disbursements, and how many lending partners do you have right now?"

Answer: Yes, personal loan disbursements have seen a decline, mainly due to tighter conditions in the industry. We've shifted to a pure distribution model where lenders handle collections. Currently, we have between eight and ten lending partners, totaling around fourteen overall. Future growth will depend on the credit cycle improvement and our ability to introduce secure credit options.

Question 2: "What are the expectations for MDR on UPI for larger merchants and its impact on monetization?"

Answer: We believe MDR on UPI is expected to come soon. While we can't predict the exact government approach, its introduction will enable monetization of QR deployment and related services. Regarding UPI incentives, we anticipate low figures going forward, especially with the MDR coming in, which aligns with our operational strategy.

Question 3: "How do you see AI contributing to cost reductions?"

Answer: While I can't specify exact percentages, implementing AI has significantly improved productivity, allowing cost reductions without staffing decreases. We're focusing on automation, which shouldn't lead to direct job cuts but will enhance overall efficiency in our operations.

Question 4: "Can you provide insights into your user base recovery and its importance?"

Answer: The user base does matter, but our future earnings are driven by retained customers. We've emphasized product improvements rather than aggressive marketing. Aiming for 200-250 million highly engaged users is our target, focusing on quality engagement rather than sheer numbers.

Question 5: "Can you discuss your growth expectations in international markets seeing past shifts in strategy?"

Answer: Our focus has shifted back to international opportunities based on our technology's adaptability and efficiency. We're not launching the Paytm app abroad but developing partnerships to monetize our tech in local markets, leveraging our extensive engineering capabilities.

Question 6: "What are the medium-term revenue growth and EBITDA margin targets?"

Answer: We target 30-35% top-line growth and a 15-20% EBITDA margin in the next two to three years, supported by improved operational efficiencies and reduced indirect expenses, especially leveraging AI advancements.

Question 7: "What caused the decline in financial services customers?"

Answer: The decrease to 5.5 million financial services customers is tied to both sluggish personal loan disbursements and lower trading activity in Paytm Money following regulatory changes affecting the broader industry, which we expect to recover as conditions stabilize.

Question 8: "How is DLG cost affecting your margins, and can you share any new partner details?"

Answer: The DLG cost varies, averaging around 3-4%, predominately impacting merchant loans. We currently have three partners. However, due to commercial sensitivities, specific figures will remain undisclosed, although these partnerships are crucial for maintaining competitiveness in lending.

Question 9: "Why was the exceptional expense of Rs.522 crores booked this quarter?"

Answer: This decision was dictated by our auditors. We expect this one-off expense to stabilize, and I anticipate that upcoming quarters could present a path to PAT profitability, provided current operational trends hold.

Question 10: "How are payment processing charges evolving?"

Answer: The decline in processing charges stems from both a favorable mix and improved negotiations with partners. Continuous efforts to enhance our cost structure should facilitate further reductions, ensuring competitiveness while maintaining attractive margins.