IGI Logo

Reset of loan distribution business remains the talking point 

Our view – Management sees growth opportunity in larger ticket personal loans

Management flags opportunity size for larger-ticket personal loans based on whitelisted customer base greater than 20mn: Revenue from Financial Services business was up 36% YoY to Rs 6.07bn. The value of loan disbursed amounted to Rs 155.4bn, up 56% YoY but down -4% QoQ. The sequential decline in distribution was driven by re-calibration of Paytm Postpaid loans. The company had also been cutting down on personal loans from the last 4 quarters but, particularly, over the last 2 quarters, personal loans have been flat. The growth in personal loans business will come from large-ticket personal loans. There is a whitelisted customer base of 20mn for largeticket personal loans.

Management explained that the rise in payments processing charges as a proportion of payments revenue was entirely seasonal: The payment processing charges have risen about 20% on sequential basis due to most of the festival season falling in the third quarter. Last year, the festival season has partially fallen in the second quarter. The festival season typically has customers using credit cards more often, which leads to higher payment processing charges. The payment processing charges should normalize in the fourth quarter.

We maintain a less-than-bullish ‘ADD’ rating on PAYTM with a revised price target of Rs 900: We value PAYTM at 4.5x FY25 P/S to arrive at our price target of Rs 900.

Result Highlights (See “Our View” above for elaboration and insight)

? Revenue from operations: Revenue at Rs 28,505mn was up 13.2%/38.2% QoQ/YoY, sequentially driven by Payment Serv. to Merchants and Commerce.

? Payment processing charges: Payment proc. charges were up 20%/33% QoQ/YoY and were 58.5% of Payments Serv. Revenue, up/down 405/-549bps QoQ/YoY

? Contribution profit: Contribution profit at Rs 15,200mn was up 6.6%/45% QoQ/YoY, translating to a Contr margin of 53.3%, down/up -328/251bps QoQ/YoY

? Expenses (excl Payment proc. charges): Total exp. were up 4.9%/22.5% QoQ/YoY. The YoY growth was driven by Employee and Other opex

? Standard EBITDA (Calc.): EBITDA loss, at -Rs 1,595mn, lower -31%/-52% QoQ/YoY, translating to an EBITDA margin of -5.6%, improved 358bps QoQ

Key revenue items

? Overall revenue was up 38% YoY to Rs 28.51bn for the quarter, driven by Payments services to merchants, Financial Services business and Commerce.

? The revenue growth in the quarter was supported by the festive season.

? The overall revenue does not include the UPI incentive, which comes in the fourth quarter.

? Revenue from Payments services to merchants was up 69% YoY to Rs 10.81bn.

? Revenue from Financial Services business was up 36% YoY to Rs 6.07bn.

Contribution profit and margin

? The overall contribution profit has risen 45% YoY to Rs 15.2bn, translating to a contribution margin of 53%, up by 251bps YoY but down -328bps QoQ.

? The contribution margin was lower sequentially as there was a full festive season where there are a higher cash-backs, tighter payments margins, events business scale up and other factors.

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632