Paytm parent One 97 Communications Ltd reported a profit of Rs 930 crore in the second quarter ended September 2024 from Rs 290 crore loss a year back, on the back of gains made from sale of its entertainment ticketing business to Zomato.
Without the exceptional gain, Paytm continues to be in red in the said quarter at Rs 495 crore loss, a 70 percent jump compared to last year.
However, Paytm managed to narrow down to its loss sequentially by almost 41 percent from Rs 840 crore it reported in the June quarter (Q1FY25) on the back of cost cuts.
At the same time, the company's revenue from operations also increased slightly (10.5 percent) to Rs 1,659 crore from Rs 1,501 crore in Q1, but dropped 34 percent year-on-year.
As part of its strategy to recover, Paytm had announced to sell its event-ticketing business in August to food delivery firm Zomato to focus on its payments and financial services business.
"On August 21, 2024, the company (Paytm) entered into definitive agreements with Zomato Limited for sale of its movie ticketing business and events business housed in the company as well as its two wholly owned subsidiaries for a total consideration of Rs 2,048 crore which was subject to cash and net-working capital adjustment at closing," the company said in a regulatory filing.
A win-win for Paytm-Zomato shareholders? The deal holds promise for both NCR firms
The transaction resulted in a gain of Rs 1,345.4 crore, which was reported in the financials as an "exceptional item", resulting in Paytm's financial turnaround into profitability.
The sale also increased Paytm's cash reserves to Rs 9,999 crore as of September end.
Quarter updates
Paytm's managed to bring down its indirect cost by 17 percent QoQ to Rs 1,080 crore due to reduction in employee costs (down 13% QoQ), marketing expenses and absence of certain one-time expenses incurred in the first quarter. As a result, its adjusted EBITDA loss came down to Rs 186 crore in the September quarter compared to Rs 545 crore in June quarter.
In Q2, Paytm's revenue from payments rose 9 percent QoQ to Rs 981 crore, led by increase in GMV, focus on monetisation and increase in merchant subscriptions.
The net payment margin increased 21 percent QoQ to Rs 465 crore, largely on account of improvement in payment processing margin, better device realization and growth in GMV.
Going forward, Paytm said it sees additional monetisation opportunities on Soundbox, and has started piloting advertisements through Soundbox which integrate branding between companies and consumers. It has partnered with brands like Meesho, Cocacola, Mondelez and Dabur, among others for Soundbox Ads.
Financial services
On the other hand, revenue from financial services and others rose 34 percent QoQ to Rs 376 crore. The company attributed this growth to increase in collection bonuses in merchant loans and a higher share of merchant loans, which have higher take rates.
In the merchant loan distribution business, Paytm said it has started working with select lenders by giving Default Loss Guarantee (DLG) for select portfolios. It entered into a DLG agreement of Rs 225 crore with SMFG India Credit, wherein Paytm will take the first loss hit if borrowers default on payments through its platform.
"From August 2024, we have started distributing merchant loans under the DLG model with one of our partners. The outstanding AUM amount for this portfolio as on 30th September 2024 is Rs 1,651 crore," it said.
Paytm shifts lending strategy, enters into first FLDG agreement to boost merchant loans
Paytm distributed Rs 3,303 crore merchant loans, versus Rs 2,508 crore in the previous quarter, while the personal loan distribution was down to Rs 1,977 crore versus Rs 2,500 crore due to tighter policies around unsecured lending.
"Not a mediocre player"
On the future outlook, founder and CEO Vijay Shekhar Sharma stated, "There are large opportunities for Paytm to grow. We are not here to become a mediocre player. Paytm will have a significant role to play in the UPI consumer market. Once we have customers on the platform, we will have extraordinary opportunities to cross-sell financial services and other by-products."
During the earnings call, Sharma expressed confidence in the company’s ability to address the concentration risks in the UPI ecosystem.
“In the UPI ecosystem, when the RBI allowed us to become a TPAP (Third Party Application Provider) player, it very clearly marked a responsibility to Paytm to potentially solve the concentration risks the system carries,” Sharma said in a call with analysts following the results.
Paytm, which received approval as a TPAP on UPI in March, holds a 7 percent market share in a space dominated by PhonePe and Google Pay, which together control 85 percent of the market.
At 11:06 am, Paytm shares were trading 3.5 percent lower at Rs 700.50 on the National Stock Exchange (NSE). The stock has risen around 8 percent so far this year, underperforming Nifty's returns of 14 percent.
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