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Business trajectory admirable but longish runway still remains for bottomline profitability

Result Highlights

Revenue from operations: Revenue at Rs 15,409mn was up 5.8%/89% QoQ/YoY, driven by Payments Services to Merchants and Financial Services and Others

Payment processing charges: Payment proc. charges were down/up -1.1%/52.2% QoQ/YoY and were 74.4% of Payments Serv. Rev., down -457/-1351 bps QoQ/YoY

Contribution profit: Contribution profit at Rs 5,392mn was up 18.8%/210% QoQ/YoY, translating to a Contribution margin of 35%, up 383bps QoQ

Expenses (excl Payment proc. charges): Total expenses were up 2.4%/94.8% QoQ/YoY. The YoY growth was driven by Emp. Exp. and Marketing and Prom. Exp.

Standard EBITDA (Calculated): EBITDA loss, at Rs –7290mn, lower/higher - 7.5%/58% QoQ/YoY, translating to an EBITDA margin of -47.3%, up 680 bps QoQ

Our view – Business trajectory admirable but longish runway still remains for bottomline profitability

Improvement in Revenue from operations was driven by Payment Services to Merchants and Financial Services: Revenue from Payments Services to Merchants rose 90% YoY to Rs 5.72bn, driven by MDR-bearing instruments GMV and payment devices. Revenue from Financial Services and Others rose 342% YoY to Rs 1.68bn driven by rise in value of loans disbursed.

Sequential improvement in Contribution profit margin was driven mainly by controlling Payment Processing Charges: Improvement in Contribution profit margin was driven by improved margin in the Payments business on the back of control of Payment Processing Charges, rise in share of high-margin businesses such as Lending and Cloud Services and an improvement in the margin of Commerce and Cloud business. Payment processing charges as a percentage of Payments Revenue declined 457 bps QoQ. on the back of transaction routing to lower-cost payment gateways, improved (lower) transaction rates with partner banks and increased usage of low-cost instruments such as UPI, including for Wallet loading.

We maintain ‘Reduce’ on PAYTM with a revised price target of Rs 580: We value PAYTM at 5.5x FY23 P/S, factoring in customer addition embargo and increased regulatory risk.

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