Hurts when people don’t understand we turned profitable without cutting expenses: PB Fintech’s Yashish Dahiya

Edited excerpts:

You reported the first quarterly (Q3FY24) net profit and with minuscule losses in the first and second quarters, you're already in the first nine months on a net profit basis. How do you feel? 

Yesterday we had a get-together of about 85-90 people. As I looked at those people, I could not see even one person who would put themselves ahead of the company. And to me, that was the most telling thing and the thing to be happy about.

That is what tells me that whatever has been done, has been done in a very sustainable manner. That also means there are two paths to the future. One is the next three years-the operational part. The second is the strategic part, much more right brain, innovation. And to achieve that, we need to deliver the next three years because scale is critical to get credibility.

If you ask me what is the probability that we would not deliver on the three-year operational objectives, I would say less than 5 percent. So, that gives a huge amount of confidence.

Do you feel vindicated? Do you think some of these institution investors didn't have as much faith in you as they probably should have?

Anybody outside cannot see the depth of the management. The 200 people in our company are independent, driven, company first, and that culture cannot be smelt from outside. Investors and the outside world will only respect the delivery of numbers. They can respect the narrative only so much.

There are three aspects of the business, first is the business fundamentals, second is the actual numbers delivered, and third is the narrative that we showed. Among these three, the numbers are the weakest, our narrative comes in the middle. The reality is that the business is much stronger.

That's the natural course of events. The fact that our business is better than numbers…whichever investor realises and becomes an investor can today see the outcome.

You have mentioned that profit is not your focus, but you spoke about targeting Rs 1,000 crore in future...

We don’t want to overly focus on profitability. If you do the growth, profitability will follow because we know our business.

There is only one comment that hurt. It said they have made a profit by reducing costs. It hurts when other people do not understand you. Because that is exactly the opposite of what we have been doing. We have been growing into profitability.

You grew the revenue at 43 percent this quarter...

Let's not look at it in terms of quarter, but years. We were a thousand crore loss-making company. Our revenue has grown 4X and not by cost cutting. Some people's lenses were colored. They're not accepting this but the numbers are the reality.

Our investors trust us, they put their money on the line. They believe the business is stronger than numbers, and it makes sense to invest. Otherwise, there is no point investing because the numbers have already been factored in.

Rest of everybody is just words and noise. They have no skin in the game at all.

You also crossed the IPO price recently. 

That's a psychological barrier, which is a good barrier to have crossed. Everybody expected PB Fintech to become profitable because of how the numbers were trending over the past three quarters.

You said that you are looking to make thousand crore profits in two financial years, could you walk us through this?

Absolutely. This 2027 story has been set in stone about three years ago. There is an operating part of the business and a strategic part. Strategic perspective, nothing needs to be done to achieve that.

At a fundamental level, do not look at one quarter. Last nine months, we have added Rs 500 crores of additional revenue. Our adjusted EBITDA has increased by Rs 170 crores. That is an operating leverage of 34 percent.

Let us assume it is 30 percent. I have grown my revenue in the last three years by more than 4X. What do you think my revenue growth would be in the next three years? Let us say 2X, which is 28 percent growth. My revenue this year is Rs 3,600 crores. That means I would have added 3600 crores of additional revenue.

Just 30 percent of that is around Rs 1,000 crores. That is exactly what that profit will be.

There is a chance that profits will be higher than this?

This year I will have about Rs 70 crores of profit. And I will also tell you what I have not factored in here. I have Rs 330 crores of ESOP charges this year. That will be Rs 100 crores that year at most. Rs 230 crores of loss was reduced in just one metric.

In the new initiative, I am losing Rs 170 crores of losses, which I will definitely make zero. I got another Rs 170 crore reduction in loss, so Rs 230 crore plus Rs 170 crore is Rs 400 crores. The best case scenario would be still making Rs 1,400 crore in profits in FY27.

I have Rs 400 crores in the back book which I know is going to be delivered. My renewals are more profitable. Efficiencies will happen at scale. This is at just 28 percent growth for the next three years, which is much lower than we have ever grown so far, and will give us, Rs 1,470 crores of profit.

How much of that is coming from going to be coming from Paisa Bazaar? I think, at the end of Q1, you mentioned that the Annual Run Rate (ARR) for lending would be Rs 16,000 crores. After Q3, you recalibrated to Rs 14,300 crore or so?

Paisa Bazaar broke even on December 2022. So it's just about been a year. I am talking about the credit business, which is going to make Rs 55 crores this year.  How difficult do you think it is for a business that has delivered Rs 80 crore delta to get to Rs 200 crores of profit in another three years? They also are a 40 percent contribution margin business. This is a guarantee.

Our entire focus is not profit, it is growth. Because in our business, all you need is a tail. I always tell people internally, forget about profit. Don't worry about it. That profit is the tail. It is going to follow.

You cannot make a loss with an expanding business with an operational margin that we have. And that's what some people have understood and they have gone ahead and quietly invested.

Did not that idea come to investors because for most of the tech startups growth came with higher losses, right?

People have colored lenses so they cannot identify one from the other. I remember talking to an investor six years ago, who was boasting about their various investments and how well they are doing. But he said one important thing, which I take as one of my important learnings in life. When the tide falls, good and bad, everybody falls.

It takes time for people to identify good and bad. According to me, it takes 5 to 7 years for people to just distinguish the two.