Paytm posts strong revenue growth in Q2, says tech teams, increase in merchant base key factors behind continued improvements

Paytm's net payments margin stood at Rs 443 Cr, an increase of 15% QoQ and 428% YoY, driven by greater monetization and ongoing improvements in payment processing charges.

Paytm has posted strong growth in revenues and contribution profit, combined with operating leverage. Image Source: PTI

Paytm posts strong revenue growth in Q2, says tech teams, increase in merchant base key factors behind continued improvements: Paytm, India's top provider of financial services and digital payments, has maintained a solid pace in both its operating and financial indicators. With operating leverage and the company's outstanding sales and contribution profit growth, it has been able to significantly increase EBITDA before ESOP costs.

Paytm's net payments margin stood at Rs 443 Cr, an increase of 15% QoQ and 428% YoY, driven by greater monetization and ongoing improvements in payment processing charges.

Digital financial services firm One97 Communications, which owns Paytm brand, on November 7 reported that its consolidated revenue from operations increased by about 76 percent to Rs 1,914 crore during the reported quarter from Rs 1,086.4 crore in the September 2021 quarter.

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The company's monetization base is growing along with the number of users and merchants. Merchant subscriptions is an attractive profit pool for the company, as it drives higher payment volumes, subscription revenues and merchant loan distribution. The company said: “We continue to make disciplined investments in areas where we see attractive monetization opportunities, including sales team to increase our merchant base and our merchant subscriptions, investments in our technology teams, and targeted marketing for user acquisition and brand.”

In the second quarter, its revenue was at Rs 1,914 Cr, an increase of 76% YoY with a driven by growth in loan disbursements, continued growth in the merchant subscription base leading to increase in subscription and MDR revenues, and increase in payment gateway revenue driven by higher GMV in online business, primarily ecommerce.

In addition to improvement in contribution profit across businesses, other factors that helped boost Paytm’s contribution margin were a) increase mix of high margin businesses such as loan distribution and b) indirect costs at Rs 1,010 crore in the quarter were flat vs previous quarter’s Rs 1,001 crore despite investments to drive further growth.

As a result of continued focus on improving monetization capabilities, widening contribution margin as well as significant operating leverage, Paytm’s EBITDA before ESOP cost stood at (₹166) Cr, improving 61% YoY. Since its operating breakeven guidance in April 2022, the company has been able to drive a Rs 201 Cr improvement in EBITDA before ESOP cost, and continued to maintain the guidance of turning profitable by September 2023.

Paytm said that its revenue from payment services to consumers increased by 55 percent to Rs 549 crore on year-on-year (YoY) basis while payment services to merchants went up by 56 percent to Rs 624 crore YoY. "This was achieved without any UPI incentive during the quarter," the company said.

The company's net payment margin (calculated as payments revenues plus other operating revenues, less payment processing cost) increased multi-fold to Rs 443 crore on year-on-year basis on account of improved monetisation and continued focus on reduction in payment processing charges. The company's revenue from the financial services business was up 293 percent to Rs 349 crore on YoY basis and now accounts for 18 percent of total revenue, compared to 8 percent in September 2021 quarter.

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