Paytm said sustained growth in revenue has led to expansion in contribution profit, leading to a 20% YoY increase in contribution margin. The company’s contribution profit for Q2FY23 stood at Rs 843 crore, marking an increase of 224% YoY and 16% QoQ, resulting in expansion of contribution margins to 44%, compared to 24% in Q2FY22.
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.
On track to achieve profitability
The Q2FY23 financial results indicated that the company is achieving traction across all its businesses, continuing the momentum witnessed in Q1FY23. The company reiterated that its on track to achieve EBITDA before ESOP cost profitability by quarter ending September 2023.
The company said improvement in operating leverage is visible in reduction of indirect expenses as a percentage of revenue to 53% in the quarter, from 60% in Q1FY23 and 63% in Q2FY22. With this, the company has also witnessed improvement in EBITDA before ESOP cost by Rs 259 crore YoY. Paytm’s EBITDA before ESOP cost improved by Rs 201 crore in the past two quarters, with an improvement of Rs 108 crore on a sequential (QoQ) basis despite continued investments in sales, technology and marketing.
Payments revenue gains momentum with 400% net payment margin growth
The payments business witnessed revenue growth of 56% YoY and 9% QoQ in the quarter on account of continued platform expansion, resulting in growing user engagement with average monthly transacting users (MTU) growing 39% YoY to 79.7 million, while the merchant base has increased to 29.5 million. The company also strengthened its leadership in offline payments with 1.1 million devices deployed in the quarter, leading to the overall deployed base reaching 4.8 million. This led to an increase in Gross Merchandise Value (GMV) YoY to Rs 3.2 lakh crore.
Revenue from payment services to consumers stood at Rs 549 crore, an increase of 55% YoY, while payment services to merchants was Rs 624 crore, marking an increase of 56% YoY. This was achieved without any UPI incentive during the quarter.
Financial services revenue now accounts for 18% of total revenues
The company’s lending vertical saw revenue from the financial services business was Rs 349 crore, up 293% YoY and 29% QoQ. It now accounts for 18% of total revenue, compared to 8% in Q2FY22, driven by sourcing and collection revenues. In Q2FY23, Paytm disbursed 9.2 million loans, up 224% YoY and 8% QoQ, amounting to Rs 7,313 crore, marking an increase of 482% YoY and 32% QoQ.
Paytm Postpaid disbursements stood at Rs 4,050 crore, (449% YoY and 20% QoQ growth), driven by increased user adoption and further widening of the merchant acceptance network to 15 million merchants. Personal loans disbursements amounted to Rs 2,055 crore (736% YoY and 53% QoQ growth), with more than 40% of disbursements in this quarter made to existing Postpaid users, while merchant loan disbursements stood at Rs 1,208 crore (342% YoY and 46% QoQ) due to growth in devices business. More than 85% of the loans disbursed in the quarter were to merchants who have Paytm devices.
As of Q2FY23, Paytm Postpaid’s penetration stood at 4% of average MTU, while Personal Loans penetration was at 0.6% of average MTU and Merchant loans penetration stood at 4% of total devices deployed.