Paytm targeting free cash flow by year-end: CEO Vijay Shekhar Sharma

In the past quarter, Paytm reported a slight sequential improvement in cash balances — Rs 8,367 crore compared with Rs 8,275 crore at the end of March 2023 — in an indication of a trend reversal at the company that has been consistently eating into its cash reserves over the last one year.

Read more | ETtech In-depth | Inside Paytm’s cashback offers for retailers

“We remain committed to generate free cash flow by the year end, you must have seen we have already started adding to our cash reserves,” Paytm tweeted, quoting Sharma.

Compared with Rs 9,271 crore in March 2022, the cash position was almost 10% lower. It had spent Rs 1,050 crore in share buybacks towards the third quarter of the last fiscal year.

“Due to positive Ebitda (operating profit) before ESOP (employee stock option plan), improvement in working capital, and interest income, our cash balance has increased,” the company said in its June earnings release.

Discover the stories of your interest

Read more: Paytm parent One 97 Communications grants 1.7 million employee stock optionsReducing marketing expenses

Purely on marketing, Paytm spent Rs 265 crore in the June quarter, down 16% from a year earlier. Cashback expenses fell to less than half at around Rs 85 crore from Rs 175 crore. Employee expenses, however, rose to Rs 1,106 crore, including for employee stock purchases, from Rs 911 crore in the June quarter of last year.

Paytm’s payment processing charge rose 10% on year to Rs 766 crore. As payment volumes go up, processing cost goes up too, weighing on profitability.

“Payments as a core business will always have a negative impact on the overall balance sheet, even if payment volumes go up significantly,” said a top fintech executive on the condition of anonymity.

Expanding network

Paytm’s merchant subscription base rose to 7.9 million at the end of June from 3.8 million a year back.

A closer look at the transaction base indicates that despite the transacting merchant base having gone up two times, the revenue contribution from payments has only gone up 31%. Paytm said revenue from payments totalled Rs 1,414 crore, compared with Rs 1,078 in April-June 2022.

“In the medium to long term, we expect the payment processing margin to settle at 5-7 basis points as the share of UPI transactions increases,” the company said in the earnings release.

It is further trying to improve its Ebitda profile by betting on providing diversified payment offerings and focusing on higher revenue generating payment modes, such as cards and EMI through its point-of-sale (PoS) offerings.

Focus on credit business

Paytm continues to focus on its credit business as it deploys more (PoS) terminals.

ET wrote on July 7 that Paytm was offering cashbacks to merchants to get them to deploy Paytm QR codes and payment terminals at their retail outlets.

Interestingly, the financial services business has grown almost at the same rate as it added subscription merchants. The credit business contributed around Rs 522 crore to Paytm’s revenue, up 92% from Rs 271 crore in the year-earlier quarter.

Read more | Paytm’s merchant payment push continues as June numbers show

Both merchant lending and Paytm Postpaid, its buy-now-pay-later business, grew. The value of post-paid loans rose 138%, while merchant loans grew 232% and personal loans expanded 202%.

“From a purely merchant lending pace, we are not chasing metrics around the number of merchants (availing loans) but also chasing the best outcome for our partners and our job is to get better quality of merchants for our partners,” Paytm president and chief operating officer Bhavesh Gupta said on Saturday.

On the analyst call, chief financial officer Madhur Deora said the company’s overall credit quality is on an upswing. It had predicted the expected credit loss to be 75-100 basis points (0.75-1.00 percentage point); however, that had reduced to 65-85 basis points.

During the earnings call, the company pointed out that higher repo rate has had an impact on its take rate, or commission, but it is expecting rates to go down in the coming quarters, which will help push up the take rates.