One97 communication Ltd (NSE: PAYTM) Q3 2025 Earnings Call dated Jan. 20, 2025
Corporate Participants:
Pranav Kumar — Director
Madhur Deora — President, Group Chief Financial Officer and Whole Time Director
Vijay Sharma — Founder, Chief Executive Officer, Managing Director and Chairman
Analysts:
Pranav Gundlapalle — Analyst
Sachin Dixit — Analyst
Alok Srivastava — Analyst
Piran Engineer — Analyst
Shubhranshu Mishra — Analyst
Anand Dama — Analyst
Manish Shukla — Analyst
Rahul Jain — Analyst
Jayant Kharote — Analyst
Siddharth Gupta
Rishabh Seth
Lokesh Manik — Analyst
Presentation:
Pranav Kumar — Director
We’ll start our call with a Q and A After introduction to the management. If you seek to ask a question, kindly utilize the Raise hand feature on your Zoom Dashboard. Please ensure that your name is visible as your name, last name followed by your company name for us to be able to identify you. From PAYTM Management, we have with us Mr. Vijay Shekhar Sharma, Founder and CEO Mr. Madur Devra, President and Group CFO and Mr. Anuj Mittal, SVP, Investor Relations. A few standard announcements before we begin. The information to be presented and distributed. Discussed here should not be recorded, reproduced or distributed in any manner. Some statements made today may be forward looking in nature. Actual events may differ materially from those anticipated in such forward looking statements. Finally, a replay of this earning call and transcript will be made available on the company’s website. Subsequently we will start our Q and A. Now we will unmute your line and take the raised questions. Take questions from the raised hands.
Questions and Answers:
Pranav Kumar
The first question is from Pranav Guntapalli from Bernstein Pranav. You may ask your question now.
Pranav Gundlapalle
Hey, good evening. Thanks for taking my question. Two questions are one is in terms of your GMV, what percent of the transactions would be cases where PayTM’s on the merchant side versus those where the app is on the consumer side? I’m just trying to reconcile the consistent growth in GMV versus the loss in overall UPI market shares. Just trying to see where if there’s a difference in the consumer market share versus merchant market share. So that’s the first question. I’ll come back for a second.
Madhur Deora
Thanks man. We actually have a little bit of disclosure in the back of our earnings release which talks about number of transactions and it also says merchant transactions. So you can see in December 24th we had 1.1 sorry, we had 1000 crore merchant transactions and we had 1,2,3 2 total transactions. Now it is the case that in merchant transactions some of them might also be our consumers. But if you just looked at how many transactions we are doing for merchants, that is in the disclosure in the back, I think it’s fair to say that if you take a year on year view, then the merchant side of the business has grown whereas the consumer side of the business, you know, even adjusted for discontinued businesses has been flat or slightly degrown.
Pranav Gundlapalle
Understood. That’s helpful. Thanks. And second, could you share some color on the rupee on UPI transactions and what it could mean for the payment margins if it increases significantly from here?
Madhur Deora
Yeah. So as, as I think there is a gist of the question on rupee on UPI we do make MDR unlike Bank Linked upi but it is still a very small percentage growing fast. But it’s still a very small percentage of the merchant transactions right now. So as that grows that does add another monetization lever for us.
Vijay Sharma
Pranav I’ll also add one extra line that we get extra bips which is significant extra bips and it does include payment margin between other instruments versus rupee credit card. And we do believe that credit card running on QR gives us as acquiring side much larger revenue than on the consumer side because consumer side you don’t get larger revenue even though there is some BIPs that is page to the consumer app also but acquiring site gets disproportionately more valuable and useful there number one. Number two pradav I did this survey, I asked my team to do a survey that we saw this new you would have seen couple of million new customers added. I said why did you sign up so fast without any marketing advertising and our QR being present, our brand being present on ground was one of the big actually number two triggers. First was literally that they wanted to try out PAYTM once again because they got to know in the press and then second was that I saw the QR code. So our acquiring would add to the consumer equation is what our belief is and that is why we will aggressively expand on our consumer merchant acquiring because that gives us an edge in consumer also. So there is a little bit of flywheel that we are seeing here and that is probably one of the reasons that we didn’t see large number of exodus either and vice versa.
Pranav Gundlapalle
Thank you. Thanks a lot. Answers
Pranav Kumar
Thank you Pranav Next question is from Sachin Dixit of JM Financial. Sachin you may ask your question now.
Sachin Dixit
Thanks for the opportunity. So my first question is basically on regards to DLG and the mix within merchant loans. So we did some maths around the AUM numbers that were shared and somewhat we are coming up with almost 80% of merchant loans in this quarter came from DLG sort of arrangement. Are we directionally in range? Secondly, is this is this the right steady state or a number or mix from DLG that we are hoping for or we are trying to optimize for a certain number there?
Vijay Sharma
That number is in the ballpark Sachin and give or take a few percent I think that’s probably right. Like we have said we think DLG is a good model non DLG is also a good model. So relative to each other we are quite indifferent. If a partner thinks that it is easier for them to do business of lending to merchants in a DLG model or if they can do more business as a result then we are quite open to doing DLG based business with them. So we don’t target number in that sense, but, yeah, ballpark, that should. It should be in that range.
Sachin Dixit
And you are seeing interest from more lending partners on the same model, I’m guessing.
Vijay Sharma
Yeah. So. That’s right. So we’re seeing more interest from lending partners in. General across MCA as well as personal loan. MCA in particular has been a product that has done consistently very, very well for us and for our partners. So we are seeing more interest in that. And yes, within that there are some partners who are more interested in DLG models and for there are some partners for whom it doesn’t really make much of a difference.
Sachin Dixit
Sounds good. My second question is with regards to the plan in international. So I see that there are some subsidiaries that we are looking to put in place. Is the plan there to do largely UPI sort of enablement? Some of these countries also have UPI extension that has happened or we are planning to build an entire merchant ecosystem sort of thing like we have in India in these countries.
Vijay Sharma
Yeah Sachin, I’ll take that. And the intent here is to first go on the merchant side because merchant side business model is a very long term business model and every economy and geography that I’m meeting different, different senior executives in either in central bank or government love it because SME credit is missing everywhere. So if you can solve for payment and solve for future forward receivable, that business model is a template in my opinion. In our opinion, technology wise, capability wise, we’ve demonstrated at scale. So our primary plan will be that.
Sachin Dixit
Got it. Thank you. And all the rest. Thank you.
Pranav Kumar
Thank you Sachin. Next question is from Alok Srivastava of ubs. Alok, you may please ask your question.
Alok Srivastava
Yeah, thanks Pranav. So I have this question on DLG model that ECL number that we have given that number has come down to 4 and a half to 5 versus 4.75 to 5.25. So how are we measuring these, these numbers? We are measuring these numbers or lenders are sharing these numbers.
Madhur Deora
These numbers are based on a collection data. So. So there’s a couple of things, right? So one is when the lenders put a program in place, they have in their program an expected credit loss. And in our conversations with lenders we ensure one of the questions that we obviously touch base on is whether the program is within the bounds of their expected credit loss. But the specific data that we put out including the bucket wise resolution is based on our collection data. As you know in merchant loans we help our partners with vast majority of collections from the because these are active merchants of ours. So basis that we have a sense of how this is trending towards expected credit loss.
Alok Srivastava
So Madhur, sequentially the decline would also be because of DLG that we are doing. And earlier it was largely the normal one that we were doing or sequentially. There has been change in some underwriting standards.
Operator
And so on.
Vijay Sharma
So DLG does not affect the ecl. So just to clarify, so ECL is the ECL of the portfolio where our loss guarantees are versus where the partners losses and provisions are, is independent of how ECL is measured. The DLG book is doing at least as well, in fact slightly better than the rest of our book. And that’s just sometimes some books do better, sometimes some books do slightly worse. So there is a, there is a, I wouldn’t necessarily draw a pattern there. And the reason for improvement is generally collection efficiencies. Obviously with a lag it is also indicative that your underwriting is getting tighter. I would just also add that at the beginning of 2024 we had some, you know, sort of a little bit elevated churn amongst our merchants. So that may have affected some of the UCL as well. But as the business has stabilized and growing and our partners are, our merchant partners are growing very well with us, we are seeing improvements in collection efficiency as well as a lot of the work that we have done to bring even greater amount of sort of efficacy to our collective practices.
Alok Srivastava
Sure, Madhur, thanks, that’s very helpful. I have a couple of more clarifications on fldg. So FLDG number that we shared last time that we are doing less than 5%, does that still hold true? That’s one. Secondly, all the DLG costs which are upfronted, are they fully captured in the other direct cost? And also if there is any unutilized DLG which may happen a year from now, where will it show up in P and L, will it be adjusted against cost or will it become part of revenue?
Madhur Deora
So first question correct. On a blended basis, our DLG cost is significantly lower than the 5% and it has broadly remained the same as last quarter. On your second question, yes, we so far all the DLGs that we have given, we provision them immediately in that quarter and that is in other direct expenses, even though the DLG invocation by the partner is obviously with a lag as and when gcls hit. And the third is that if we do have a situation where we have provisions which are, which are getting, which are not getting used, then it would be a reversal in that cost.
Alok Srivastava
Okay, got it. Thanks a lot Madhur. All the best.
Pranav Kumar
Thank you. Alok. Next question is from Piran, Engineer of clsa. Piran, you may please ask a question.
Piran Engineer
Yeah, thank you. And congrats on the quarter. Just firstly to clarify on one of the previous questions, is it is DLG given only on merchant loans or on both.
Madhur Deora
There is a small amount of DLG that we give in personal loans as well with select lenders only in the collection model, not in the distribution only model.
Piran Engineer
Correct. Okay, okay, fair enough. So it was 80% of just the merchant loans are, are disbursed through DLG.
Madhur Deora
That’s right.
Piran Engineer
Okay, fair enough. And just secondly, if you can give us a sense of how many merchants currently have a loan outstanding from, you know, from you.
Madhur Deora
It is broadly it’s 5 to 6 lakh merchants who have a loan outstanding. So it has roughly been 4 to 5% of our device space.
Piran Engineer
Okay, okay, fair enough. And that can go to what sort of a number in your opinion is 5 to 6 lakhs? Yeah, I’m just trying to think about, you know, the medium term growth rate here.
Madhur Deora
Yeah, we in the sort of, I would say two to three quarter, two to three year period, I think we definitely have an opportunity of increasing the percentage penetration to maybe 10 to 15%. One of the things that I should point out is that that is only one of the three drivers of the overall growth in merchant loan volumes and revenues. The other two drivers are that over time the ticket sizes have increased and they continue to increase. So I remember three years ago this number was about 1 10,000. Currently the number is about 2 lakhs. And part of that is because the value per merchant has grown in paytm because the merchants obviously are doing a lot more digital payments today than they were doing three years ago, especially our best merchants to whom the loans are sort of qualified for. And the second is a percent. Large percentage of the loans are repeat loans where our lending partners have greater confidence because that merchant has already shown good behavior of taking a loan and repaying the loan. So that’s the second driver and third driver is obviously the growth in the base of merchants which is, you know, obviously grown by basically doubled in the last two years. And we still see a huge Runway ahead. Right. So okay, so and over the last couple of years we have actually kept the penetration percentage relatively flat despite the fact that the volume of dispersal has gone up very, very meaningfully. So we’re going to continue to be cautious, we’re going to continue to have tight white lists. But I would say over the next two, three years we have an opportunity of taking this to north of 10%. And I think the long term opportunity is probably even higher than that.
Piran Engineer
Got it. And Madhu, just when you increase the ticket size, does the tenure also correspondingly increase? Or has that remained at that 12 to 18 months.
Madhur Deora
The 10 year decision is independent of whether you are increasing the ticket size. So if you have more confidence on the stability of the merchant, then the partner may increase the tenure as well. Right. So yes, it is the case that for select merchants, for a repeat loan, the tenure might have gone up, but you don’t increase the tenure just to increase the loan size. You look at how much you think you can collect per day from the merchant and that is one of the variables that goes into the loan size. And then you look at how stable the merchant is with you and that sort of decides kind of what the maximum tenure you are willing to do. And those two things sort of effectively end up in terms of what is the maximum size of loan that you would be willing to do. So those are slightly independent. The tenure has not grown very much because again, that is a conservative assumption that we take, which is that we don’t want to increase our loan sizes and loan book just by increasing tenure and then fundamentally changing the nature of what we are trying to do here. If the merchant is a good merchant, they can take a loan, well, 13 months later they would have repaid that loan and at some point towards the back end of that journey or after repaying the loan, they’re eligible for another loan. Right. So the merchant with good behavior can have access to credit instead of saying, hey, they give me a super long loan.
Piran Engineer
Got it. Okay, fair enough. And just my last question, just a clarification on page six. You mentioned that your payment processing margins was comfortably above the guided 3bps margin. But you know, sort of when I, when I just assume say 90 or 100 rupees rental income per device, the margin, the residual margin comes to about two and a half pips. So what am I missing here? Is my rental income assumption incorrect or what?
Madhur Deora
While we can go through your math offline if you don’t mind, but yes, your rental assumption is slightly higher than what our actual is. But it still doesn’t quite get me to two and a half biffs. So I can, I can anuj. Or I can look at.
Piran Engineer
Fine, we’ll take care of. Yeah, yeah, that’s fair. Cool. That, that’s it from my end. Thank you and wish you all the best.
Madhur Deora
Thank you so much.
Pranav Kumar
Thank you so much. Thank you. Next question is from Subranshu Mishra. Subranshu, you may ask your question.
Shubhranshu Mishra
Hi, two questions. The first one is around the associates, various associates. We have someone in Ivory coast and various other African countries. So just I was curious, why do we have so many associates where probably we’re not in business right now? Second, is this particular international expansion, what is the total market? Market size that these countries have and what kind of market share are we targeting there? Thanks.
Madhur Deora
On the first question, we do have many subsidiaries, actually direct or step down subsidiaries in Middle East, Southeast Asia, South Asia and Africa. Nearly none of them have to do with Paytm’s business. They have to do with the ORD197 business, which is a part of what we disclose as marketing services, where we provide services generally to telecom operators. And this is a business that 197 has been doing for, call it 20 years. And in many of these countries there’s a requirement that in order to build those local telecom operators we have to have a local subsidiary. We are in the process of rationalizing these number of subsidiaries because some of these were set up many, many, many years ago and we have little or no business in some of these countries. So over the next three to six months we’ll look to see if we can reduce these number of subsidiaries in terms of international expansion. We have mentioned subsidiaries in three specific. Three specific. Sorry Pranav, could you just put Anand on mute? Thank you. So we have mentioned three particular subsidiaries, two in Middle east and one in Southeast Asia. We think that the opportunity in Middle east and Southeast Asia is massive and many of these countries need more and more solutions and distribution in the merchant ecosystem. We have been able to build great technology at very low cost in India and we think we can service the merchants here really well. But we are going to, like we said, explore select opportunities, generally speaking, opportunities in countries where there is a large local market.
Vijay Sharma
We should also say that it is very, very far ahead. So don’t misunderstand it to be showed up in a quarter or two for sure because these are entity formation, license, application, operating. So let’s just please understand that it will take some time.
Madhur Deora
Yeah, I should mention that we have said we’re exploring these things. Setting up a subsidiary is. Has a long lead time from setting up a subsidiary to in some cases getting licenses and then eventually, you know, having products launched and merchants signed up and then starting to generate revenue and profit. The good thing is that this, These are largely B2B businesses so they don’t have large upfront spend, which is why we have said that to begin with we are seeing up to 20 crores of investment in each of these markets which is also a bit of a placeholder now. Number we don’t really think that we need large amounts of money in these countries.
Shubhranshu Mishra
Sure. Can I just squeeze in one last question? Sure, sure. So, and what are our targets for personal loan disbursement on a monthly basis and merchant loan disbursement on a monthly basis for FY26?
Madhur Deora
With a project process of concluding this. But I could answer, I could answer that directionally. See on personal loan, it is very market dependent, if I had to be honest, because we absolutely respect the fact that our partners are being very cautious through the cycle. And this is unsecured digital pl. And the partners want to just make sure that this reflects their view on the credit cycle. And especially at this point in the credit cycle, one should be cautious. So I would say, honestly, it’s hard to say where we exit. For example, if you said March 2026. Right. What is a good number? What’s not a good number? I think the way we are measuring this business right now is how many partners are doing meaningful business with us. So that’s what we are trying to drive at this point in the cycle. And then when the partners have a more growth mindset in terms of their PL book, we think we can be a beneficiary of that. On the merchant loan side, we expect continuously steady growth. Currently we are doing. Currently we are already higher than where we were in January and we expect continuously steady growth. Largely largely because of what I said in response to Piran’s question earlier. I think it was Pran’s question where we talked about medium term penetration. There’s upside as well as the base is growing and the ticket sizes continue to inch upwards on a blended basis.
Shubhranshu Mishra
Sure. Thanks. Cheers.
Pranav Kumar
Thank you. Thank you so much. Next question is from Anand Dhamma of mk. Anand, you may please ask your question.
Anand Dama
Hi. Thank you for the opportunity and congrats for the great set of numbers. My question again is related to peer disbursement only. Right. You know, do we expect that to bottom out soon that now you started offering, you know, DLG in PL as well and FY26, you may not give number, but should be better versus FY25 if things go positively?
Madhur Deora
Yeah, we definitely expect. I mean, unless there are big changes in. And if FY26, unless the FY26 macro looks worse than FY25, don’t expect we. We do expect that FY26 will be better than FY25 and especially given that we are going to have. Have additional partners going into FY26. We do expect a increase in this business and a rebound from the lows that we saw earlier this year.
Anand Dama
And the DMG in the PL business could be on a higher side versus the merchant loans. Is that safe to assume?
Madhur Deora
Not necessarily, no. I think in business the DLGS on a blended basis lower than 5%.
Anand Dama
And is there any update on the non PL, non merger merchant loan products that you are actually planning to launch?
Madhur Deora
You want to talk about that non pl, non personal loan. So this might be referring to. Sorry Alan, this is.
Vijay Sharma
You don’t know what kind of other product are we talking here known pl?
Anand Dama
So. So basically any home loan or you know mortgages is what basically we were talking talking about earlier on. So is there any update over there like
Vijay Sharma
No, they are very low margin. They increase the line expenditure on us and we have not been able to find out a commercially logical reason the CAC was. I mean the opportunity cost of executing that versus other things. I’m not yet big fan to be honest about it of those loans but we did try them out but we sort of receded from that.
Anand Dama
And I think on the net payment margin you said that the subscription revenue is still doing well. Are all the device merchants now paying you full rental or there are still some merchants where you are waiving the rent because you know you want them to gradually pick it up.
Vijay Sharma
There are certain merchants who get rent refund based on certain volumes and features. Always now or later.
Madhur Deora
Yeah, so clarify. We don’t give waivers basis in activity. We give waivers basis. If you’re doing a large amount of volume with us then we give that which is what Vijay is referring to as a refund. So there are programs that we would run that if you do very large volumes with us then you don’t have to pay the subscription. The logic is that those merchants are great merchants in lending eventually. And also we make rupiah incentives
Anand Dama
If you can basically squeeze. One more question is on your capex you said that basically large for the devices you are actually repurposing and supplying it. How long do you see that capex will remain so low? And any guidance for depreciation?
Madhur Deora
I think that that is one of the few factors that is an important factor for sure. But it’s also cost of device has come down as we are ordering at large scale and so on. So we don’t expect the CapEx to go back to FY24 levels and we think that the refurbishment sort of savings on capex due to refurbishment should generally be the case over the next 2, 3/4 that this number is not something that we actively manage on a month, on month basis or. On quarter basis. So that might go up and down a bit. But refurbishment supply is there for the next sort of 2, 3/4. And even in FY26 we don’t expect the CapEx to go back to FY24 levels on depreciation. I mean, I don’t want to give a specific guidance other than to say that as the F high capex of FY24 relative to FY25 as that starts to sort of roll off because these are two year. For two year depreciation for soundbox, then we should see a reduction in in capex, sorry, reduction in depreciation and we’re already starting to see some of that. But we should see that just sort of accelerate a bit next year.
Anand Dama
Thanks a lot.
Pranav Kumar
Thank you, Anand. The next question is from Manish Shukla of Axis. Manish, you may please ask your question.
Manish Shukla
Yeah, good evening and thank you for the opportunity. Now that you started giving DLG as a lender, what is an incentive for a lender to do a non DLG loan with you?
Madhur Deora
I think these are, these are sort of good faith discussions that one does. Some lenders say I don’t really need DLG because it doesn’t really help me. I’m comfortable doing it in a non DLG model. I quite like the model earlier of you keep the sourcing fee or I pay you a sourcing fee and then eventually you get a collection incentive in the end versus some lenders say that hey, it’s kind of important for us. It will help us scale the business. Right. So these are good faith discussions. There isn’t a. Yeah, I mean if one had to not think of win win and they just had to think about hey, why not just take the DLG then. I can see where your question is coming from but that’s generally not the tone of the discussion. Generally the tone is this and we are comfortable doing X amount. But yeah, it might be helpful for us to have FADG and we can do more. And on the basis of that one sort of agrees a certain model.
Manish Shukla
Okay. The cash that you got from Pap Takes A is sitting in the Singapore entity. What is the proposed end use of that money?
Madhur Deora
We’re still working on that. The cash is sitting overseas and we haven’t. I’ll see cash is fungible. If we needed cash in India then we would have also brought back. But we don’t need this cash in India. We have over $10,000 of cash in India. So we will work this out over the next couple of quarters. Whether there is a overseas use of funds of this money or whether we should bring that back to India. Most likely, eventually we’ll bring it back to India in some form.
Manish Shukla
And if you were to get it to India, will there be tax implications?
Madhur Deora
We’re still working through the tax. The implications of this.
Manish Shukla
Okay, next question on contribution margin, where do you think it stabilizes going ahead? I mean you’ve been really tightening your belt on expenses. But I’m just trying to understand where does the steady state contribution margin? What does it look like? Y
Madhur Deora
Eah, so we’ve talked about without UPI incentive, this being at 50 to 55%. So 50 to 55 and including UPI incentive for this to be 55 to 60%. So we continue to believe it will be in that range. We do see. And I should just point out that the contribution margin last quarter and this quarter, particularly this quarter, has been impacted by DLG costs which comes in other direct expenses. And from last quarter to this quarter it ramped up because last quarter we did it in the middle of the quarter with our largest merchant lending partner. So this quarter the number was much higher. Not because we were giving more DLG as a percentage, but because of the full quarter impact. So as that number sort of plateaus a bit relative to our overall dispersal, we should see an uptick in contribution margin just basis that factor alone.
Manish Shukla
But mother, you’re also making corresponding collection fee upfront as well. So there’s a revenue impact also of the dh, not just the cost.
Madhur Deora
So what we make up front is still sourcing fee. What I said in the last call is that the trail revenue is significantly higher. Right. So there are two impacts. One is the trail revenue is significantly higher. And I know there are a couple of questions about sort of our lending take rate which has gone up meaningfully partly because of this. Not only because of this, but partly because of this. And second is the DLG cost has gone up meaningfully this quarter compared to last quarter but over time it plateaus. So what happens is if we have, if we have given X amount of loans under dlg, then that starts to generate the trade income over the next 3, 4, 5 quarters whereas the DLG cost is not going up meaningfully.
Manish Shukla
Sorry to squeeze in. Then what really explains the QOQ jump in take rate if you can just help us, the Delta 79%
Madhur Deora
It’s partly the trail revenue problems given the previous quarter as well as a little bit of loans given this quarter. So whatever you gave in October, November, you have higher trail revenue. And secondly, our collection efficiencies have continued to improve like we mentioned earlier, which means that in our, if you will, old non FRDG book we are getting higher collection revenues than we did before.
Manish Shukla
Got it. Thank you. Those are questions. Yeah.
Pranav Kumar
Thank you. Next question is from Rahul Jain of Dholat Capital. Rahul, you may please ask your question.
Rahul Jain
Yeah, hi. Thanks for the opportunity. So if you could help me out. What is the ideal revenue run rate of the non lending part of financial services? And what could be the ideal gross take rate on DLG part of MCA book?
Madhur Deora
Sorry, what was the second part of the question?
Rahul Jain
So what is the gross take rate on the DLG part of the MCF merchant loan?
Madhur Deora
The gross take rate over the lifetime of a loan in the DLG business. So if you remember earlier we used talk about 3 to 4% on sourcing and 1 to 2% on collection. Right. So to that you can add the FRDG amount. So let’s say the FRDG amount was 3.5% or 4%. You can effectively add that in order to get gross take rate. But to be clear, most of that is not in the quarter of dispersal. So in the quarter of dispersal it will be the sourcing fee which we have talked about is 3 to 4% and the collection revenue goes effectively goes up by the amount of FRDG cost that we have incurred. Does that directionally answer your question?
Rahul Jain
Yeah, yeah. So essentially we should reach 8,9% on a trailing basis. That is how the maths would eventually work.
Madhur Deora
Yeah, broadly that’s right. It also depends on the FIDGY cost and depends on various other things but that’s probably broadly right, that can be a bit higher than that because. So that is the model we should use to talk about. Like we have mentioned in the last couple of quarters our collection efficiencies on MC has gone up. So that 1 to 2% that we had indicated we make on a trail basis, that number is also inching upwards. So yes, but broadly the math that you did was right. Second is on non financial services. Sorry, non lending revenue in financial services, I don’t want to give you an exact number because that’s we think slightly additional breakup. But broadly it has been 10 to 20% of our financial services revenue almost consistently over the last eight or nine quarters. So when lending revenues have gone down like they did in Q1 and Q2, then it was a little bit higher and currently as lending revenues are recovering then it’s a little bit lower but it’s been in the 10 to 20% range.
Rahul Jain
Got it. And just last one more question. Given the kind of. Of efficiencies that we are deplet displayed on the indirect cost side and our commentary on the depreciation side and of course the amounting cash position and cash generation expectation in the coming quarters. And probably we might have achieved adjusted EBITDA break even at least on an exit month basis if not for the quarter. So is there any specific goal post that we are aiming for going into next fiscal or calendar whatever?
Madhur Deora
So I think just laying this out, like we said, we’re very close to EBITDA before ESOP profitability. This is without UPI incentive, just to point out. So for example, if we got this quarter’s share of UPI incentive in this quarter, then we would already be profitable. But obviously the, the sort of phasing of that works a certain way. And what is also going on when we look at EBITDA to Pat is that our interest income is going up largely because we have more cash than we did before. Our depreciation is going down as you discussed earlier and our ESOP costs are going down as we have disclosed in the back of the earnings release. So as a result, the gap between EBITDA before ESOP and PAT is going down very meaningfully. I think in two or three quarters that that gap will be basically zero. So just mathematically we’re going to get very close to, we’re going to, you know, get to Pat profitability once EBITDA before ESOP is profitable, either in, you know, maybe in the next one or two quarters sequentially. So that’s obviously a clear, I wouldn’t even say a target. That’s just something that, that we are just sort of marching towards. But eventually the point is that we want to get very efficient as an organization. We want to drive higher revenue growth. We have had obviously some headwinds with respect to where we are in the sort of credit cycle and personal loans and so on, which is fine. I think one just has to be cautious and delegate long term businesses. And as we start to get that revenue growth, a lot of the work that we have done this year on becoming more efficient should translate into fantastic operating leverage. And so while EBITDA break even and Pat break even are milestones, but obviously that’s not the goal. The goal is to have, you know, double digit EBITDA margin relatively soon and then have that, have that translate into a substantial amount of Pat
Rahul Jain
Understood. So first, first goal as you rightly said is the difference between adjusted EBITDA and PAT would vanish in a couple of quarter, maybe Q4, Q1 and then the double digit EBITDA margin probably 4 to 6 quarter from that point and from a growth point of view, as you rightly said, and we have the right size the business in various aspects. So what should be a good benchmark for growth on a three to five year perspective basis for the assuming the same set of business stays in the same form and shape, there’s no new incremental revenue line that we might see or maybe a recovery on one or two products that we are not working on. So assuming the same business stays, what should be a three to five year goal post on the growth path?
Madhur Deora
Yeah, for reasons I’m sure you’ll understand. Rather I don’t want to give specific guidance or specific ranges off the cuff, but I think things that get us excited is obviously payment volumes in India are growing very meaningfully, so maybe 20, 25% year on year relatively safely. The second is the take rates are starting to have some levers of tailwinds. So somebody asked earlier about rupee on UPI just like that. There are several other things which are inching take rates, which are putting a bottom at the take rates but also increasing take rates. Merchants willingness to pay for devices and other hardware and software is very encouraging as well. So I think that is another monetization source. We have a whole page in the earnings release about why we’re excited particularly about the merch merchant payment side of the business. And then the last thing we point to is that only about 6 lakh customers or merchants have taken a financial services product from us last quarter and we’re not even getting into product per customer. Right. Which is I know in financial services something that more mature organizations track. We’re just talking about number of people who have taken at least one financial services product for us from us and that is only at 6 lakhs which is less than 1% of our base. Right. So clearly there’s an opportunity to distribute to more of our customers in merchant financial services. And if you’re able to do a good job of that, these things obviously even at less than 1% scale it is north of 450 crores of revenue for us. So if we are able to increase that penetration by finding the right products for the right customers and having them transact on that on our platform, then there’s a huge amount of high margin revenue. That is available to us. So maybe I’m sort of stating the obvious but I think these are the two or three components which get us really excited about our business in the medium term.
Rahul Jain
Sure, sure. That’s quite helpful and encouraging. Thank you.
Pranav Kumar
Thank you Rahul. Next question is from Jen Jeffrey. Jen, can I please ask a question?
Jayant Kharote
Thanks for the opportunity. Just one more on the dlg. If I got the construct correct, it seems that we may be starting off on an incremental basis with a contribution margin of less than 50% on these products, incremental DLG disbursals and then as 3 to 4 quarters sort of pass and you get the collection incentives that can move back to 50 or even higher. And if that is the case then does it mean for the next two 3/4 should expect contribution margin to be near nearer to the 50 mark rather than the 55 mark?
Madhur Deora
So I, I agree with the first two points that you made. So just to be clear, in the month of dispersal the merchant loan is less than 50% margin, right? Because we get a sourcing fee like we’ve always mentioned is 3 to 4%. We have an FDG cost which is meaningful. Can you put Siddharth on mute please? Thank you. So we make. So we pay an FIDGY cost which while we have said is less than 5%, it still means that the business is not in that month contribution margin positive. And yes, over time we make a lot of failed revenue which you know, while answering Rahul’s question we sort of had a directional computation on. So overall that business is significantly higher contribution margin. I think the point that I was making earlier is that our FDG cost, despite the fact that it doubled this quarter, more or less double this quarter because you’re seeing from the dispersal numbers. Despite that we were able to maintain our contribution margin. Obviously going forward we expect our revenue from merchant loans to grow faster than incremental FRDG than effectively FRDG growth because we are starting to get collection revenue from not only the old book but also from the FRDG book. So we don’t expect that incrementally from here there should be a huge drag on contribution margin but I just maintain the 50 to 55% range. I think there’s just various factors where one shouldn’t overly try to be precise about quarter on quarter contribution margin trends. And I know too early on
Jayant Kharote
This one, but given that the DLG book has been there for now, Of five odd months. How is it behaving compared to the earlier products? And I’m asking this because in terms of incremental dispersals, almost 2/3 are coming from this product. It, it. It’s fair to assume that this product will become the the largest part of ML dispersals going ahead. So,
Madhur Deora
So I mean the, the. The business is effectively the same, right? Which is that merchants who display certain behavior are whitelisted and they can get loan from one of our partners. The DLG book may behave the same or slightly better or slightly worse compared to the non FRDG book. Non DLG book because of something which might be partner specific. Right. So we have DLG relationships with some partners but not with other partners. So that might there might be certain partner specific reasons why it may behave better or worse. As it stands, our DLG book that we have done in the last five months has done I would say noticeably better than our, than the non DLG book AUM that exists. Right. So it is very much on track. If anything it is doing slightly better and we have really no cause of concern on the unit economics or the expected credit losses of that book.
Jayant Kharote
Thank you and congratulations for a great set of numbers. Thanks.
Pranav Kumar
Thank you Jen. Next question is a follow up question from Pranavalli Pranav. You may ask your question.
Pranav Gundlapalle
Hey, thanks for taking one last question. The question is on the personal loans, can you just provide some color on what drives a lending partner’s choice of going with a pure distribution model versus one where you are responsible for collection? Is it simply economics or is it risk? What rights choice?
Madhur Deora
I think it might. So. So in some cases it’s just segments. So we have actually both models with multiple partners. Right. So we have multiple partners who will do distribution business only with us because they are, they are underwriting them a certain way and they believe that their existing collection infrastructure can take care of those loans. And then there are. Then they’ll also do collection led business because they think that our collection capability may be much more efficient and much more effective for a certain base compared to them sort of figuring out or adding capabilities to their other collection capabilities. So it really is really an underwriting call that. Do you feel comfortable we’ll work with them to say there’s a segment that we think we will just have you distribute loans to because you don’t really need our. Collection capability and there’s other bases where you may be able to under distribute give them loans because PAYTM is able to collect from them.
Pranav Gundlapalle
Okay. So I’m just trying to understand if we should expect a meaningful change in the mix if let’s say the operating environment improves from here or would it change if it deteriorates further from here. So I guess as long as the loan mix remains where it is, we shouldn’t see a big change in that mix between one versus the other.
Madhur Deora
Yeah, I think the idea is that you would go to partners and have both conversations and I’m not quite sure like I’m not quite sure. We have a very strong view that let’s say we’re sitting here four quarters from now and partners have more comfort on the credit cycle. Will they switch more more towards collection model or more towards distribution model? I don’t necessarily think we have a strong view on that but. But I think, I think the idea is that work with partners and continue to find more win win partnerships because our platform has a huge number of capabilities, distribution and collection and some.
Pranav Kumar
Pranav. I also want to add that distribution is more like when we have extraordinary differentiation than let’s say a Google search would have. Otherwise it’s merely an advertisement because you’re properly practically you are trying to generate a lead and then you’re giving the partner something. So I’m personally going to say that we remain inclined towards high margin product and it’s sort of what we are showing and seeing. Even though distribution does make sense because we don’t address all needs. For example like larger ticket products, we don’t put them these categories. So there is a fair mix of distribution and distribution plus collection. Distribution plus collection is the preference because it gets us more margin. Distribution only does get us larger money per ticket. We in both days are trying to create methods or APIs between lenders and us so that it can be easier done than as neutrally third party as advertising on Google could work or some third party place could work. What I can tell you is that we’ve been able to successfully create even in distribution the integration which is far easier and far better than someone else. So distribution opens up diversity and collection opens up high margin.
Pranav Gundlapalle
Understood. Thank you. Thank you very much for the answers. Thanks.
Pranav Kumar
Thank you. Pranav. Next question is from Siddharth Gupta of Voyager Capital. Siddharth, you may please ask your question.
Siddharth Gupta
Hi. Thank you for the opportunity and congratulations for a great set of numbers. Most of my questions about DLG have been answered. I just wanted to have a few quick questions. First one is what is the quantum of DLG we want to meaningfully envisage over the next few quarters we’ve gone from 225 to 350 just to get a ballpark figure of where we are looking at. The second most specific one is basis our previous payouts and our rough estimations. What is the rough quantum of the UPI incentive we stand to receive in the upcoming quarter? And lastly, I just wanted to understand our roadmap on three of our products that now that we can add customers back on UPI and we have also publicly stated of the goal of going back to our January 2024 levels which was I think around 9 or 10% odd market share. Where is if we have a particular roadmap of how we wish to go down that route, do we wish to take a cashback based route or do we envisage organic growth? And if you could shed some light on PAYTM Money and insurance broking as a business because we’ we didn’t delve too much into it in the release that came out. Thank you so much.
Madhur Deora
Yes, that a lot of questions but I’ll go the most critical one which is the consumer growth which is because internally we have now switched our gear towards the growth where the merchant growth and consumer growth both are something that are very imminent and seeable. If you notice the number of consumer growth without marketing spend enhancement is very very very encouraging. I in answer of a previous question also suggested that there is an organic flywheel that we are seeing. My in our attempt would be that we continue to do a product led growth instead of big bang spend money led growth and we do believe that there is a great opportunity of product improvement and product differentiation. We have a lot in queue going ahead in consumer side in terms of product streamlining. There were a lot of I tweeted and I learned a lot about what is not good and actually we knew it a lot of it. So we were in due course waiting for different different level of regulatory clarity before we started to release out the product. And I’m happy to say that those product lined up will give us growth or retention, better retention, better growth, better reactivation. So that is where our primary opportunity on consumer growth will be. Money and insurance are still work in progress businesses money is something that where there is an attention on mutual fund distribution because I think that mutual fund distribution is a great amount of number of customers that we are able to sign up because of as you are aware that you must have seen on social media and otherwise also that there is a clarity that revenues and trading revenues, thanks to F&O, etc. Have declined. So we have followed the same trend as the market has seen. So there is a lot to, let’s say, I would say, do there based on mutual fund, which is what our focus area is right now. Number of sip, number of mutual fund customers. That is what we are trying to say. And insurance wise, it is an embedded insurance along with. With our health and auto insurance which are very good bottom line contributors. So that is what we’ll continue and rest dlg. Again, back to Madhur. He’s sorry on UPI incentive. While we don’t know what the exact structure will be, so it’s hard to predict a number but we do have about 15 to 20% growth in eligible GMB. And so if you look at our last year number and going forward and had to sort of take a ballpark guess at this number, this year’s number, then it should be in that range. But I would hate to sort of just start blurbing out certain numbers of what we should expect in Q4 on DLG. Sidharth, we don’t really have a target number. We believe in the model and this DLG is while it is a cost up front, it is more than made up by the profitability on the merchant cash advance business or merchant loan business. So we think it’s just in a sense an investment into getting that profit pool. So we don’t really have like a number which is to say, hey, we’ll eventually cap it at this number. Of course the board approved numbers have been disclosed but I would expect that the board would be constructive given the performance of this business when we go back to them for any additional approvals.
Siddharth Gupta
Fair enough. Thank you, Madhur. Thank you, Vijay. And Vijay, that was a great initiative of tweeting for two things on product improvement on yours. Absolutely loved it. Thank you so much. Thank you.
Pranav Kumar
Thank you, Siddharth. We’ll take two last questions given positive time. Next question will be from Rishabh Seth. Rishabh, you may ask your question.
Rishabh Seth
Hi Vijay. Thanks for the opportunity. I just wanted to check are there any thoughts on the wallet business? Do you guys want, you know, at some point of time start redoing it? Just wanted to kind of get, get your thoughts now that the whole PTM bank thing is, is behind us. If you have any thoughts or if you guys are planning something on that.
Vijay Sharma
Yeah, we, we want to do it. We’ll take the next step idea is.
Rishabh Seth
Got it. And any, any view in terms of the timeline for this outcome.
Vijay Sharma
As people who are on the side of the call, we have only actions that we can effort outcome.
Rishabh Seth
Okay. All right. But based on that you will decide how you want to go forward on that. All right, got it. Thanks so much.
Pranav Kumar
Okay, thank you. Next question is from Lokesh of Vellum Capital. Lokesh, you may please ask you a question.
Lokesh Manik
Yeah. Hi, good evening. Just a couple of questions.
Pranav Kumar
Okay. Sorry. You are not audible. Can you please speak? Take closer to the mic.
Lokesh Manik
Yeah. Is this better? Yeah, please. Thank you. Yeah. Madhu, couple of question one is on the if you can share the AUM on the basis of which the financial services revenue are generated, do you think that would be a better way for us to track the performance of the financial services business? That is one second is if you know, hypothetically in the midterm, if you have to grow your FLDG book, would it be capped to the free cash that you are generating internally or would you want to dig into the cash file which is sitting in the balance sheet? Those are my two questions.
Madhur Deora
So on your second question, the sourcing fee that we make in the month of dispersal is really the same, generally slightly higher than the DLG cost. Right. And obviously we make a lot more money as trail revenue. So we don’t really. So it’s not like in the month of dispersal it’s negative business and we are doing this hoping that we’ll make be able to make up for it later and then make more money. So that’s not what is going on here. So that constraint would be a logical constraint to put, but it’s not really the case here. Anyway, on your first question, a majority of the revenue that we make is upfront and a sourcing fee, at least in the non FRDG model it was always the sourcing fee was a larger chunk. So that’s why we had always pegged it to dispersal. I think we can consider maybe whether AUM is better number. I’m slightly skeptical but we’ll think through it. I think one of the things that we are driving at also is what is the revenue per customer that you make from the number of customers who have taken a financial service product. So one of the ways that we have also started to look at it is you have 6 lakh customers taking a financial services product and you made 450 crores. So what does that drive to the long term? Of course now some customers are higher arpu, some products are higher arpu, lower arpu. But broadly speaking, the leading indicator to being able to make more financial services revenue down the road is if more of your customers are availing it. Yeah, I think AUM is when you are the actual book owner, which we are not. So I would go towards per customer revenue, sort of an ARPU from financial services and they could take any of the three services, loan, credit or insurance. Fair enough. That’s a perfect representation of the product led strategy that you’re talking about.
Lokesh Manik
That’s great, thank you. So much.
Pranav Kumar
Thank you so much. With that, we come to an end of this call. A replay of this earnings call and the transcript will be made available on the company website subsequently. Thank you all for joining. And you may now disconnect your lines. Thank you.
Madhur Deora
Thank you, everybody.
Vijay Sharma
Thank you.