EBITDA before ESOP only tells partial picture: Vijay Shekhar Sharma on shifting focus to PAT

Paytm founder Vijay Shekhar Sharma

Paytm will shift focus from EBITDA before ESOP to profit after tax (PAT), as the former provides only a partial picture of a business’ financial health, the payments company’s founder and managing director Vijay Shekhar Sharma has said.

The change is part of Paytm’s broader strategy to demonstrate genuine financial performance and operational maturity, Sharma told shareholders at the firm's annual general meeting on September 12.

EBITDA, short for earnings before interest, taxes, depreciation and amortisation, is an additional metric for determining net income profitability. Lately, many new-age firms have been claiming EBITDA profitability by reporting what they call adjusted EBITDA or EBITDA without counting employee stock option (ESOP) costs.

Finance experts are divided on this new financial metric, as it may not be a true reflection of a company's financial health.

"My board members advised me to shift the focus from EBITDA before ESOP as a benchmark to PAT.  We recognise that EBITDA before ESOP, due to its large ESOP charge, provides only a partial picture of our financial health. Our commitment is now to focus on PAT, reflecting our drive towards true profitability," Sharma said.

The Noida-based firm had reported its first-ever adjusted EBITDA profitability in Q3 last fiscal. However, after a period of conservative growth, the earnings took a hit in the January-March quarter due to shut down of its banking entity on January 31.

The operating profit fell to Rs 103 crore in the March quarter from Rs 219 crore, sequentially, before slipping into red in Q4FY25 at Rs 545 crore. It consolidated net loss for the quarter widen 134 percent year-on-year to Rs 840 Crore  as compared to Rs 358.4 crore in the year ago-period.

During the earnings call, the company said it aims to become profitable by March 2025 as business shows recovery.

The founder hailed his team’s resilience after the Reserve Bank of India (RBI) dealt Patym a severe blow, barring its payment bank from offering banking services.

“I am proud of my team which has emerged stronger and more resilient in the last six months, learning core lessons,” Sharma said. “It was a lot of learning in the last six months in business, compliances, and the way we operate. We got an opportunity to look deeper and are now a compliance-first business.”

Sharma also laid emphasis on leveraging AI to enhance operational efficiency and cost management.

"We, as a nation, have leapfrogged to become leaders in financial technology, and now we have the opportunity and obligation to extend that leadership into AI technology. Paytm is committed to lead the industry with our advanced AI capabilities," Sharma said.

Reapply for Payment aggregator licence

During the AGM,  Sharma reiterated the company’s intention to resubmit application for a payment aggregator (PA) licence with the Reserve Bank of India.

“We will apply for a payment aggregator licence with RBI in due course,” Sharma said.  This comes few days after Paytm received approval from the Centre, the finance ministry and the department of financial services to invest Rs 50 crore in its payments arm, Paytm Payments Bank.

Paytm had incorporated Paytm Payment Services to secure a PA licence. While the company initially tried to get the PA licence in 2020, the RBI directed it to resubmit the application to ensure compliance with the FDI rules.