One97 communication Ltd (PAYTM) Q3 FY23 Earnings Concall Transcript

One97 communication Ltd (NSE: PAYTM) Q3 FY23 Earnings Concall dated Feb. 06, 2023

Corporate Participants:

Vijay Shekhar Sharma — Founder and Chief Executive Officer

Madhur Deora — President and Group Chief Financial Officer

Bhavesh Gupta — Chief Executive Officer, Lending

Analysts:

Manish Adukia — Goldman Sachs — Analyst

Sachin Salgaonkar — Bank of America — Analyst

Saurabh Kumar — JPMorgan — Analyst

Rahul Jain — Dolat Capital — Analyst

Sameer Bhise — JM Financial — Analyst

Gaurav Kochar — Mirae Asset — Analyst

Manish Shukla — Axis Capital Ltd. — Analyst

Presentation:

Operator

Thank you for joining and I welcome to Paytm’s Earnings Call for the quarter ended December 31, 2022. From Paytm’s management, we are joined by Mr. Vijay Shekhar Sharma, Founder and CEO; Mr. Madhur Deora, President and Group CFO; Mr. Bhavesh Gupta, Head of Payments and CEO, Lending and Mr. Anuj Mittal, Vice President, Investor Relations.

A few standard announcements before we begin. This call is meant for existing shareholders of Paytm, for potential investors and research analysts to discuss the financial results of the company. This call is not for media personnel, if any media representatives are attending this call, request you to kindly drop off the call at this point. The information to be presented and discussed here should not be recorded, reproduced or distributed in any manner.

Statements made on this earnings call may include forward looking statements, actual events may differ materially from those anticipated in such forward looking statements.

Finally, this earnings call is scheduled for 75 minutes, it will have a presentation by the management followed by Q&A. Kindly utilize the raise hand feature on your Zoom dashboard, if you wish to ask a question. We will unmute your line and take your questions in the respective sequence. Please ensure your name is visible as first name, last name, followed by your company name for us to be able to identify you. The presentation, a replay of this earnings call and a transcript will be made available on the company website.

With this, I would like to request Mr. Vijay Shekhar Sharma to kindly initiate the call.

Vijay Shekhar Sharma — Founder and CEO

Thank you. Thank you so much everyone. Thank you so much for joining. I hope you’re keeping healthy and hearty. It’s an incredible quarter for us. We finally achieved, one of the important milestone. I used to call it my own salary by my own efforts. I mean, this happened last when we started Paytm and that is the time when we were generating free cash flow and we use that money to start the new business of Paytm and probably eight, nine years later, we’ve come back again to that business, milestone that we have started the focus on monetization in last couple of years and that has allowed us continuous investment in growth, while improving profitability, this quarter was a key benchmark for us to generate the profit.

And I’m very happy to say that you saw the team has done an incredible — incredible work in growing payments business or credit business, which is the focus area that we’ve done. I’ve personally looked at along with my teammates and leaders that are in the small attention and the investment or dollar location [Phonetic] as we call it to the key areas and proved many many many line items over the period in last two years. The best part, I can tell you is that I believe that this trend of generating sustained profit will continue. Our profitability is expected to grow even further, we expect to grow to become a free cash flow generating machine. I don’t call it free cash flow generating company. I wish to call it free cash flow generating machine. So, let’s see what — what comes up forward and the best part is that our focus on merchant payments instead of focusing on consumer-led UPI payment, has created a scalable UPI revenue model in subscription. I feel highly positive and in spite my reputation of our device business, especially Soundbox which has led to significant scale in UPI acquiring and various subscription led revenues that you’ve seen our month-on-month numbers show off.

In fact, if you notice that our payment revenues are also one of those line items, with where we sort of do the processing. We kept cleaning up different, different type of merchants, different, different type of line items and I’m very happy to tell you that we have completed our cleanup in last quarter and we are focusing on only quality revenues that are profitable and have growth which is something very predictable and recognizable. So we probably would have first literally in hundreds, various different kind of merchants, if they were not profitable or if they were not useful for us or generating some kind of pain in the system.

Our lending model of focusing on low and grow if you noticed. We started with small-ticket size has now demonstrated that it is a large scalable opportunity, especially because our portfolio qualities are demonstrated over multiple payment cycles, and our lenders and partners conviction and our alignment and specific focus to the regulatory landscape and guidelines gives me confidence that we are addressing a pretty large profit pool in our credit disbursement business. I understand that it is a business which is — in fancy stores, percentage of growths [Phonetic] are very very — three-digit higher, but absolute value are also you can see are very, very clearly growing nicely. So, Bhavesh, will talk about them in few course.

Lending upsell, which is now in my opinion is scalable opportunity and it does not have any regulatory arbitrage and I’m especially calling out this line, because many credit business in the country and FinTechs have been built around somewhat of a regulatory arbitrage, while what we have built is a mature business, where the partners has a comfort of credit quality, regulator has the comfort of the guidelines and we have grown organically not requiring desperate push of any kind of product in the market. In fact, our belief is that increase in digital payments ecosystem in the country, we do see that there will be market risk or different, different kind of frauds that would come into the system. But I’m very confident with the quality of work Paytm is doing the right operational risk and then what we comply will be a USP of our company and the attention that we are driving on the risk and fraud in the market will become a continue benchmark in the country. If you notice, we’ve grown as average monthly transacting users 32% year-on-year and subscription devices or subscription-led revenue.

Important thing, what I wanted again to remind you is that our focus is various sufficient line items with the merchant. So that is why not only devices, we have started two line items, few more subscription line items in the business. That is why we are converting this line-item from subscription paying merchant, instead of just the device subscription, if you notice, it is definitely key led by that. And as you’ve seen, we crossed incredible nice sort of INR10 million quarterly merchant disbursement, loan disbursement in the quarter and little less than INR10,000 crore of disbursement. Very happy to see these things driven by technology, insights and the brand that we’ve created over the period.

I invite Madhur to share the rest of the business presentation and Bhavesh to about it, we look to take lots of questions from you. Thank you.

Madhur Deora — President and Group CFO

Thank you, Vijay. It’s our pleasure to welcome you on our earnings call. So this is on revenues progression, as we mentioned, we have grown 42% year-on-year, as Vijay pointed out. As you pointed out in the earnings release this quarter, we did not record any UPI incentive. This is because the UPI incentive circulars came in January. Last year, they had come in December. So while our payments revenue grew 21% on a reported basis, on a like-for-like basis, included — including UPI incentive, this number would have been 34%. I’ll talk a little bit more about that later on in the presentation.

There were a couple of small impacts on our payments revenue, which we have called out in the earnings release. One is that since Diwali was earlier this year, some of the E-commerce sales happened in Q2 rather than Q3. So there was some impact on that. And like Vijay mentioned, we finished all the work that we wanted to do on focusing on profitable GMV. So there’s a little bit of impact from that as well. Our Financial Services revenue grew 257%, along with growth in disbursement and now is standing at INR446 crores of revenue. Vast majority of this is from our own distribution and collection business and our financial services revenue now accounts for 22% of our revenue, up from 9% a year ago. So this has clearly been a key contributor to our growth and scale.

Our commerce and cloud business grew 24% year-on-year to INR420 crores. This quarter, the key drivers were credit card and commerce. One thing we did call out is that we had high volume in our events business, which also increased our take rate and we’ll talk a little bit more about that later on. So overall 42% growth just toward INR2,000 crores of revenue and we do want to call out as like we did last quarter as well as in our December meeting, that we do receive some incentives from the PIDF and NABARD, which we count as other operating revenue, but they really relates to payments.

Go to next slide, please. This is a progression on contribution margin and EBITDA. Our contribution margin a year ago used to be 31% and we have improved that to 51%, so there has been a 20-point increase or a huge jump in our contribution margin or our unit economics and our indirect expenses as a percentage of revenue has gone from 58% to 49%. As you would have noticed in the last three quarters, this number has been flat at about INR1,000 crores a quarter and on a year-on-year basis, this has only been up 20%. As a result, as a percent of revenue, this has declined quite meaningfully. And this is the combination of these two has allowed us to become EBITDA breakeven. or EBITDA profitable. A year ago, we were negative 27% of revenue. Now, we are positive 2% of revenue. I should call out that this is sustainable and this has been done without sort of cutting down on investments that we believe to generate value for us. So this is sustainable going forward.

We did achieve operating EBITDA profitability three quarters ahead of the guidance, that which you had given us that in April of 2022. So we’re quite proud of the discipline that we built into the business and this is driven by strong revenue growth across businesses and disciplined cost management and our strong business model, which as we’ve done of operating leverage.

Moving to next slide, please. Just double taking on the payments business, our payments revenue on a headline basis, like I mentioned earlier was 21% year-on-year. Just — just expanding on the UPI incentive including UPI incentive, this number would have been 34% year-on-year. The way this works is that last year we received first three quarters of UPI incentive in Q3, which is the December quarter and that number was INR68 crore. Our estimate is that for the same three quarters this year, our UPI incentive would be INR130 crores. So just to be clear, this number is only for the first three quarters of this year, whatever we get for the fourth quarter will be above over and above this. So if we just include this INR130 crores to compare on a like-for-like basis, this INR992 crores last year included UPI incentive for the first three quarters, and then we are including management estimate of this for the first three quarters of this year to our reported number, then we get to about 34% revenue growth in payments. So payments continues to grow revenues quite meaningfully, like I said, 34% year-on-year, despite the fact that we have mentioned earlier that we have cleaned up revenue, which was not very profitable for us. Despite doing that, we have been able to grow 34% year-on-year. And just to be clear, we have not recorded any UPI incentives this quarter, because the final circulars from [Indecipherable] came in January.

We’ll go to next slide, please. We talked in the December meeting about our payment — payment business and how we track that. So our payment business generated INR459 crores of net payment margin. Net payment margin just to be clear is our payments revenue minus our payment processing costs. And that has two main components, one is payment processing margins, all the money that we make on processing payments and the second component is the revenue that we make from subscriptions. On payment processing margin, we have given the guidance that we currently have seven basis points to nine basis points of GMV. So we continue to be within that range in the December quarter. This number is including the pro forma impact of UPI incentive for one quarter and despite the inclusion of interchange pause, which I’ll talk about in a second, and we had given the guidance and we stick with that which is that UPI., since UPI is growing faster than other instruments and UPI is slightly lower margin, we expect long-term payment payment processing margin to stabilize at five basis points to seven basis points.

Coming to subscription for a second, subscription, we make a little over INR100 rupees per month per device, the number of devices has grown to 5.8 million devices now, up 3.8 million. So roughly one million a quarter is what we had been able to grow this time. Massive growth in this business and massive opportunity ahead of us and it gives us many, many benefits in terms of merchant monetization, merchant stickiness and merchant upsell, and like we mentioned, in December, and briefly mentioned earlier, we also get some incentives from partner banks RBI and NABARD. Some of them can be lumpy in nature, because that’s on a quarter-on-quarter basis, but this is a steady revenue that we get every year.

On the right-hand side, we have just given a little bit of clarity on net payment margin. So on a like-for-like basis, this number went from INR443 crores last quarter to INR537 crores last quarter — this quarter. One of the things that we have done is for our Paytm postpaid product, we now incur an interchange cost. Previously, we used to incur a promotion incentive which used to be in our cashback. So you will notice that our cashback has gone down dramatically and we have a lot of disclosure on business earnings release, but at a high level, our cashback has gone down quite dramatically from about INR190 crores to about INR90 crores, whereas we have taken INR78 crores of interchange costs related to the Paytm postpaid in our net payment margin. So while in our like-for-like basis, our net margin would have gone up much more, we are reporting INR459 crores of net payment margin this quarter. And this is the basis on which we will report going forward, including the interchange costs for postpaid and including the interchange costs for postpaid, like we’ve said, we would be at within the seven basis points to nine basis points currently.

I’ll turn it over to Bhavesh to talk to us about lending.

Bhavesh Gupta — Chief Executive Officer, Lending

Thank you, Madhur. Hi Good evening, everyone. So lending again had a wonderful quarter, this is on the back of all the three businesses, now coming to some level of maturity, postpaid as a business, you can see that now, two big things have happened, one piece, it is that Paytm postpaid continues to be the largest funding source or a lending product, which is accepted at 17 million merchants, 1.7 crore merchants in the country. We’re seeing a very good adoption by merchants who want Paytm postpaid to be available on their shops either on EDC device, payment gateway or a QR code. We continue to see a very healthy growth, obviously Y-on-Y, this number looks three-digit 300% plus but Q-on-Q basis also, we are clearly seeing this business grow very comfortably at about 25% to 30%, which is shared over the guidance that we have been providing in the last quarter, that we feel very comfortable going a lending business quarter-on-quarter between 20% to 25%, but now we’re seeing that growth actually higher than that number at about 30%.

Our personal loans Y-on-Y is looking much sharper, because we started this business shared before December ’21 quarter, so this number obviously look closer to 500% in terms of personal loan, but two interesting things have started to happen in PL. The postpaid — the customers who were taking PL from us, 40% of the disbursement has happened to existing postpaid customers and this is giving much better portfolio quality comfort to our lending partners and also is giving a great experience to our consumers who through largely with couple of clicks are able to consume this product very conveniently through the Paytm app. We’ve also started to see almost 15%, 20% of the customers who had taken PL over the last 12 to 18 months and now finished their loan, coming back to take another loan. And hence, that portfolio is also becoming very material and the quality of that portfolio is better.

New to PL portfolio continues to be operating between 30%, 40% of the disbursement amount in the quarter, which is a very healthy mix which will make the PL business not only scale very, very well for us, but also will make sure that our profitability for us and credit quality and profitability to the lending partners continues to be better than the plan. Merchant loan is something that we feel very excited now, obviously, last year through the year was impacted by COVID and we saw maybe about two quarters back that once COVID was completely out of the market, merchants coming back to the normalcy and accepting more payments and hence merchant lending. We are now seeing the acceleration amongst the three businesses, highest in the merchant lending product and we continue to believe that merchant lending product back on the devices growth will continue to scale much healthier and we do see as an opportunity that as our devices penetration keeps increasing, our loan penetration with devices merchant will also keep increasing, it is hardly about 5% and our total devices in the market have now crossed 5 billion. So we do feel very positive that all these three businesses be it postpaid, personal loans, merchant loans should continue to demonstrate very healthy quality of business and profitable products for both lending partners and ourselves in due course over the next many quarters to come.

Can we move to the next slide. If you see on the left-hand side, there is the financial services revenue, which now is contributing 22% of the overall revenue for Paytm. This has really grown very, very incrementally over the last year and this is largely backed by the performance that you’ve seen in lending business, which is contributing disproportionate portion of this INR446 crores. of lending revenues. The interesting part here is that we continue to see that the number of new borrowers who are coming in quarter-on-quarter is a very comfortable 0.5 million-ish number every month, we are not aggressively chasing this number as a metric. While the overall top of the funnel as you can understand, we are sitting with 80 million-plus monthly transacting users and of the 80 million monthly transacting users, life-to-date, in the last two years, only 8 million unique borrowers have accessed credit through Paytm platform through our various lending partners, so just 10% of our entire monthly transacting users thus far have taken any form of credit through the Paytm platform, and another 0.5 million every month are taking incremental credit as new customers on the Paytm platform. This just gives us a very good segue because we’ve spoken in the past that a very large portion of our MTU — close to 40%, 45% of our MTU is whitelisted on various loan products with our partners and hence, we feel very confident that while we continue to grow new business to new consumers and the fact that almost 40% to 50% of our existing loan business is coming from existing customers or merchant loan business, the cumulative effect will continue to give us a 20%, 30% growth rate quarter-on-quarter for the foreseeable future.

In terms of our portfolio, I think the portfolio is holding up very, very nicely. We continue to see that for all the metrics that we have demonstrated over the last three or four quarters, there has been zero, any kind of deviation in terms of portfolio deterioration of any kind. In fact, the portfolio is performing better than the expected card credit losses that our partners have assumed. These numbers for different businesses are lower between 50 basis point to 75 basis point between postpaid to personal loan and I do believe that going into the next year with higher interest rates also in mind, we do not see any kind of lead indicators to suggest this portfolio quality is going to be of any different number than what we’ve [indecipherable] out in this space.

The last point on the lending side, important to understand is that our focus on continuously looking at the regulatory landscape and working with our partners to make sure that Paytm is always upholding every regulatory processes that has been laid down both in terms of the directions coming in from the Reserve Bank of India or any other regulator and the risk appetite of lenders is making that business more solid than ever before and we are committed to make sure that we keep building this business on the four legs of risk, compliance, operational efficiency and profitability, and continue to scale this business in a manner that you’ve seen thus far.

Can you move to next slide. Yeah, Madhur, back to you.

Madhur Deora — President and Group CFO

Thanks, Bhavesh. So this is about our commerce and cloud segment, which stood at INR420 crores of revenues this quarter. The main drivers of this were our credit cards and commerce business, which saw quite a decent jump. On the co-branded credit cards like we have discussed before, which is a part of our commerce and cloud business, that continues to scale particularly well. We have started to give additional disclosure on our credit card business. As of December 2022, we now have 4.5 lakhs activated cards and we activated 1.5 lakh credit cards this quarter.

Overall for this cloud segment, our revenue grew by 15% to INR235 crores, and on a Q-on-Q basis, there’s some impact because our Pi cloud business had a particularly strong quarter last quarter. So there is a little bit of impact from that. But on an year-on-year basis, this business is performing fine. On enabling commerce, our GMV was INR2,300 crores. Our revenue was INR185 crores, resulting in the take rate of 80%. We did have high volume in our events business and we have classified in the earnings release and we were happy to take in Q&A that there are certain events in which we provide full stack services. So we have high take rates but also high direct costs. On a steady-state basis, our take rate should be roughly 6%, but in Q3 and Q4, we do see a little bit of a jump in the events business, including the full stack events.

Can you got to the next slide, please. And finally, we just wanted to call out a number of growth drivers in our business. One is that obviously as all of your experience every day, while India digital payments has grown quite a lot, it is still in very early days. Growth in UPI, cards, EMI-led payments, all of this is yet to reach the masses. So we think that just from a user standpoint — that on a usage standpoint, there is massive growth. We’re going to be launching UPI Lite soon, which allows instant multiple small-value UPI payments, which we think we’re going to need to increase in the adoption of digital payments. We’ll also be launching credit card on UPI, which enables users to link their RuPay and other credit cards to UPI.

On the merchant side, which is like Vijay pointed out really where a lot of revenue can be made, we think there’s a potential of 10 crore merchants, and more than 50 crore payment customers in the near term. So really a very large opportunity to go after. We are on the lending side working on integrating with large NBFCs and banks to leverage the full potential of small digital credit on the Paytm platform just in the way we have been able to scale it to INR10,000 crores a quarter, we think that there’s a long way to go.

We have put a bunch of disclosure in our earnings release about how we are working with RBI regarding Paytm Payments Bank and Paytm Payment Services Limited. And one of the things that we’re quite proud of is that we have been able to do all of this and increase our focus on building scale, but with a huge amount of focus on operational risk and compliance. We think that as we go forward like Vijay mentioned earlier, this is going to be quite important and quite a differentiator, both in terms of customer experience and in terms of what regulators expect from us.

And I think that’s all we had. I’ll hand it back to the moderator and we can do Q&A.

Questions and Answers:

Operator

Thanks, Madhur. We will now proceed to Q&A. Please utilize the raise hand feature on your Zoom dashboard, if you seek to ask a question. We will unmute your line and take questions in the respective sequence of raised hands. With that, we’ll move to the first question of the session, which will be from Mr. Manish Adukia of Goldman Sachs.

Manish Adukia — Goldman Sachs — Analyst

Yeah, thanks, Keshav. Hi, good evening. Thank you for taking my questions. Sir, firstly, congratulations on reaching the milestone of operational profitability in the quarter. My first question actually relates to that. So, Vijay, in the shareholder letter, you mentioned that the next milestone you’re looking for is free cash flow profitability, now with the UPI reimbursement coming through in the next quarter and your continued traction in the lending business, is it safe to say that you should get to positive free cash flow starting the March quarter itself. And related to that, where do we see margins go from here? I mean, are double-digit EBITDA margins possible by end of fiscal ’24? That’s my first question. I’ll wait for the second question.

Madhur Deora — President and Group CFO

Thank you, Manish. I just want to tell you that the Q4 UPI incentive will be one-off and we will explicitly call it out it is one-off, so leaving that apart, we will not be free cash flow generative. I mean, understand what I’m trying to tell you here is that one-off number because it is coming in Q4, remember the number INR130 crores that we are quoting is for three quarters, fourth quarter number will be topped up on top of it, but still that fourth quarter number whereever it comes we will call it extraordinary one-time line item, and because I’m calling it one-time line item, so I’m not calling it free cash flow generative. While technically with that effect adding that, yes, it could be free cash flow generative for that quarter. But again, next quarter, because it won’t be there, so then we don’t know what to say, we would rather like to say fee cash flow generative on the quarter when we are consistently sure of this. For example like EBITDA profitability that we have done an operatingly, we will continue to increase the EBITDA profitability. Could it go two-digit? In what timeline I don’t know, but yes, it could go two digits for sure. And like I said, this is a sustained EBITDA growth that we are seeking from here on.

Vijay Shekhar Sharma — Founder and CEO

Yeah.

Manish Adukia — Goldman Sachs — Analyst

Sure.

Vijay Shekhar Sharma — Founder and CEO

What we view that Manish and I think it’s just for us, it’s important that the timing of UPI payments will vary depending on when government releases the circular. So the way we see it is a bit of a normalized number. So while it is correct that we expect a chunky number to hit our reported numbers in Q4, we would not consider that as sort of normalized and as a result if that results in free cash flow breakeven, we would not consider that as normalized free cash flow breakeven or a milestone in that journey.

On the second part of your question. I don’t want to give a specific quarter or specific guidance, but we did want to call out that nearly everything that we’re doing is very sustainable. We have, as you know, been investing in growth alongside moving to profitability. So we don’t see a challenge with some of these trends continuing where we can continue to improve our revenue and our contribution profit dollars while improving and having that result in increased profitability.

Manish Adukia — Goldman Sachs — Analyst

Sure. Thank you so much for that. My second question is on regulation and thank you again for providing the detailed update in the press release. Would you be able to give us any sense on the timelines? I mean the Paytm Payments Bank, it’s now obviously lasted longer than your initial expectations. You had some back and forth with the RBI there based on the press release, can you give us a sense of how long it might be like a quarter, a couple of quarters longer, any color would be helpful.

Vijay Shekhar Sharma — Founder and CEO

RBI decisions are RBI decisions, we don’t have control over them. Based on what we’ve been interacting, the day is not very far.

Manish Adukia — Goldman Sachs — Analyst

Right. And can I ask a follow-up. I mean, have you had to make any kind of meaningful operational changes to resolve this ban that could have any kind of business impact?

Vijay Shekhar Sharma — Founder and CEO

That’s very good question. The answer is no. RBI actually called out that we went through all kind of different, different technology systems or let’s say, commercial systems etc etc. But in the end, there was no incremental dramatic change that we have to do or anything that has an impact on [Indecipherable].

Manish Adukia — Goldman Sachs — Analyst

Sure, thank you so much. That’s all I have, I’ll jump back in the queue.

Vijay Shekhar Sharma — Founder and CEO

Thank you, Manish.

Operator

Thanks, Manish. The next question will be from Mr. Sachin Salgaonkar from Bank of America. Sachin, your handset is muted.

Sachin Salgaonkar — Bank of America — Analyst

Hi, thank you for the opportunity, and congrats for a great set of numbers, I’ve three questions. First question is, when we look at payment services to consumers, it is down on a Q-o-Q basis and I do understand your comments, but I just wanted to understand the outlook going ahead. How should we look at — will there be incremental growth or we do see a bit of softness in the near term?

Vijay Shekhar Sharma — Founder and CEO

You see the growth, we were removing the bad blood.

Sachin Salgaonkar — Bank of America — Analyst

Okay, great. The second question is, Vijay, on the comment what you made about the cleanup with merchants. So what kind of an impact, and there was obviously a statement at the end by Madhur saying that and opportunity is huge in terms of 10 million merchants. Possible to help us with a bit of a lay of the land in terms of merchants, what kind of merchant cleanup are you seeing and what kind of focus of merchants is what you guys are having going ahead?

Vijay Shekhar Sharma — Founder and CEO

So, Sachin in the market there was merchants where the let’s say the rates that were provided were special case scenario rate, for example like you go to Issuer bank, and then you generalize the commercial based on that. But over the period, those rates got changed but customers rates did not change. So they were not net revenue profit generating for us — net profit generating for us. So we were extremely critical of accounts that were not profit generating for us, we were clear in the market that none of our competition, who is private can even afford to take these kind of costs. So we were clear about it that, take it or leave it and we left many of those merchants. It was led by cleanup of quality revenue that contributes towards bottom-line and growth.

Madhur Deora — President and Group CFO

Sachin if I may add just a filter that we use is that the merchant should be profitable with the only exception where we see immediate upsell opportunities, right, so for example a paper QR merchant, historically was not profitable, now with UPI incentive, they are profitable as well actually. But we also see upsell opportunities there, which is devices and merchant lending, and so on, right. But for example, certain online merchants, you would not see, for example, lending upside. So those businesses need to be profitable for us because we built technology, we help them at routing, we help them aggregate different types of payment instruments, and we should be able to make a margin on it. And that discipline as they did to every single business team. And as a result, we have been able to improve our net payment margin, there has been a marginal impact on revenue, but on a year-on-year basis, we’re still growing very significant base, so I think we quite like the trade-off where our revenue was up 34% like-for-like and our net payment margin is up 120% like-for like. I think brings a lot of great discipline in the business, that’s the right way of building a business.

Sachin Salgaonkar — Bank of America — Analyst

Okay, thanks, Madhur. And last question obviously is on the back of adjusted EBITDA breakeven and clearly, obviously, you guys are seeing the sustainability of this, so on the back of it I guess the bar goes high, right. So should we see some kind of an incremental new guidance coming from you guys in terms of either net income or reported EBIDA can breakeven or to that matter even when could we see for free cash flow breakeven? No, I’m asking fee cash flow because I presume there’s a bit of a device capex, which is going to increase going ahead. So any thoughts, any comments would be helpful.

Vijay Shekhar Sharma — Founder and CEO

Thanks, Sachin. We’re not giving any incremental guideline on free cash flow, but we are definitely making sure that we have a sustained and growing profitability. I also want to remind you that we would have lots of investments coming up in growth and market opportunity, you’ve seen it that we’ve never ever compromised. Important thing is disciplined growth and profitability, disciplined contribution in growth and marketing. So it’s an important thing that we are saying that our profitability will continue to grow and consistently along with the investments that we are making on it. As far as the timeline for free cash flow generation is concerned, we are not setting it up, and we believe that the money requirement for capex is not very, very large, it is very much generatable within the current operating business that we have, like we have discussed [indecipherable].

Sachin Salgaonkar — Bank of America — Analyst

Perfect. Thanks, Vijay. And all the best for future.

Vijay Shekhar Sharma — Founder and CEO

Thank you.

Operator

Thanks Sachin. The next question will be from Mr. Saurabh Kumar of JPMorgan.

Saurabh Kumar — JPMorgan — Analyst

Hi, guys, congratulations on this EBITDA breakeven. I just have two questions. First is on this cash flow again. So could you reconcile this INR9,200 crores cash balance to INR9,000 crores in December. How much was the capex and how much went into buyback. So I just want the — where does this INR200 crores go?

Vijay Shekhar Sharma — Founder and CEO

Yeah, so — in last quarter we had just under INR200 crores of capex, Saurabh. We do earn interest income as well. So we do earn about INR100 crores of interest income every quarter. We have actually given disclosure on how much buyback we had done until December, the number was INR68 crores. I should add at this point that as of Friday, we have completed INR796 crores of buyback in total, which was about [Technical Issue] of the maximum buyback amount that our Board has approved. So vast majority of that would have come in Q4.

Saurabh Kumar — JPMorgan — Analyst

Okay, okay, I understand sir, INR200 crores of capex and INR100 crores of — okay, I understand. The second is essentially on the loan syndication, have you still seen the incentive income yet grow from banks, Bhavesh, or that will happen later?

Bhavesh Gupta — Chief Executive Officer, Lending

Yeah, and also we don’t do syndications, Saurabh, as you know, we do distribution

Saurabh Kumar — JPMorgan — Analyst

Sorry sir. Okay.

Bhavesh Gupta — Chief Executive Officer, Lending

We do distribution. So yeah, we do see decent amount of collections revenue which come in, but as we had explained last year also — last time also that the collection revenue comes for a book that we originated, let’s say, one year back, right, because personal loans average tenures are printing between 14, 15 months. So the incentive is coming for the business that we generated 14, 15 months back. Now 14, 15 months back, obviously, business was [Technical Issue] depending on the business you look of the size. So the collection incentives in terms of rupee value in today’s term looks small, but yes, in percentage term of that year book, the number is fairly material. So yes, we are getting very healthy collection incentive. But rupee value, the number is small, but it is of last year business.

Saurabh Kumar — JPMorgan — Analyst

And would you be able to quantify that, like, percentage —

Bhavesh Gupta — Chief Executive Officer, Lending

Yeah, so we have tapped a dealer — yeah, we have said in this presentation also collection incentive is ranging between 0.5% to 1.5% depending upon the business that you’re looking at, obviously, postpaid and [indecipherable].

Saurabh Kumar — JPMorgan — Analyst

Okay and just last question is on the sustainability of this indirect costs. So you have not grown indirects for three quarters now and your marketing expense to revenue has kind of fallen to 6%, so how should we think about this indirect cost going ahead. Any color you can provide –.

Vijay Shekhar Sharma — Founder and CEO

As we’ve said before, I think we have prior to two quarters ago, we had done a significant ramp-up of indirect expenses in three main areas, one was technology, the second is sales and the third is marketing. So we had done that even as we were increasing contribution margin and revenue. You’re right to notice that over the last three quarters, we have kept indirect expenses flat in absolute terms and in percentage terms it has gone down by nine points. I think, given how well our monetization engines are working. If there are areas where — whether it’s on sales employees or on marketing, where we would make — where we could make slightly incremental expenses, we would do that. So it’s not like we are sort of internally managing this number to, hey, we have to capital INR1,000 crores or something, anything of that sort. So where we do see investment opportunities, we do that. You would have seen that within the INR1,000 crore number, people cost has gone up largely driven by sales employees and in some cases technology folks, so we do make those choices.

So as monetization is kicking-in, we might increase this number over the next few quarters, but not at the expense of increasing profitability and free cash flow. And frankly, given how well monetization is working, we don’t have to make those sort of tough choices, if you will.

Saurabh Kumar — JPMorgan — Analyst

Okay, got it. Thank you.

Madhur Deora — President and Group CFO

We do also — I should also add that like all companies in February — sorry April of every year, we also have appraisals. So that also has an impact on employee expenses, but that’s one [indecipherable].

Saurabh Kumar — JPMorgan — Analyst

Okay and just one follow-up. So of the employee, INR300 crores is the discretionary that cost of building the platform — growth — your growth cost. The remaining INR700 crores is basically just the maintenance cost of the small-business side, that’s the way one should think about it?

Madhur Deora — President and Group CFO

No, we’ve given making cost and disbursement costs, [indecipherable] sales executive are one cost. Second cost is people who make it, so the appraisal happens of the people who make it.

Saurabh Kumar — JPMorgan — Analyst

Okay. Got it. Thanks for that.

Operator

Thanks Saurabh. The next in queue would be Rahul Jain from Dolat Capital. Rahul, you can unmute you line.

Rahul Jain — Dolat Capital — Analyst

Hi. Thanks for the opportunity. I just have couple of questions. Firstly, if I look at our promotional cashback even on an adjusted basis for INR78 crore that we mentioned, it’s kind of low INR30 crore to INR40 crore on a Q-o-Q basis and it’s not significantly higher even on a Y-o-Y basis, but we’ve been adding our numbers of MTUs quite well even on Q-o-Q and Y-o-Y basis. So I understand that very large component there could have come from lending and devices used [indecipherable], where we are and how we are adding more and more MTUs with cutting down both on promotional and marketing side?

Vijay Shekhar Sharma — Founder and CEO

Rahul, these MTU additions, as you very well have seen are not driven by cashback, instead they are driven by good marketing that is led by referral marketing and great product initiatives where customer who have downloaded the app, we are converting them into better way than previous in first transactions, so we internally have a first transaction cock eye view of the customer and then retained as technology use. So it is product and technology driven by referral as a product initiative, not by the marketing initiative. That said, like I’ve always said it, we will not shy away from investing in consumer growth at a time when we see that we have outliner profit opportunities coming up. So right now it is productive [indecipherable].

Rahul Jain — Dolat Capital — Analyst

Right. So does that mean our annual transacting user is still a very high number from where this [indecipherable] spend optimization has been done and if you could share that number?

Vijay Shekhar Sharma — Founder and CEO

Rahul, we are very, very inter said. I want to tell you that we’ve looked at UPI because this was the war of UPI effectively between different companies. Somebody chose consumer P2P, somebody chose P2M, the merchant payment — we chose merchant business. So if you notice our merchant business, revenues in the industry of payments is particularly higher than every other peer all because we put attention there. In fact, our acquiring side market share which [indecipherable] does not yet declare, once they start declaring, you will see how well we are capitalized there over other UPI players also stand-alone peer players or other remit aggregators. So idea is that we have deliberately built it led by products and technology in consumer side and acquiring side is what our revenue and business opportunity would be. So we’ll do it consumer side also.

Madhur Deora — President and Group CFO

Rahul, and just to clarify, we have not slashed cashback or anything of that sort. Our contribution margin continues to improve. So we do have room if we wanted to increase cash back, but there just hasn’t been indeed, right, like Vijay said, this is very product-led, our learning is that customers long term stay with you for product or the product is improving, they just stay with you. So we are roughly doing about three basis points. So just just under three basis points of GMV as cashback, a chunk of that is referral, which is really targeted towards new users and the rest of it is just related to just transactions and users still where we have recently good take rates and we might be getting a little bit of that back to users. So that’s how we manage our business, but we have not sort of slashed cashback or anything of that sort.

Rahul Jain — Dolat Capital — Analyst

Yes, one more if I can. Basically we have been highlighting this new net payment margin and we have [indecipherable] — while we see way we have progressed we’ve improve on this metric very, very significantly and the kind of net margin that we are making right now probably we might have made in the historical basis any time in past. So what makes you think that this will get optimized for this level and rather go down eventually, just because of the mix, Because I think the number of use cases and the kind of the value or GMV individual transaction can bring, it has such a wide variety of possibilities, it would be never be possible for anybody to capture this number precisely. So why we want to share this number and think this can cool down?

Madhur Deora — President and Group CFO

I think when you adjust for UPI mix which we have clarified and you mentioned in your question, the mix effect. We think that this is a reasonably good indication of how much money are we able to make on each transaction, right, and you’re right that certain transactions may make us lower money that could depend on the type of merchant, type of customer. It could depend on the type of instrument.

So on a — so this gives us a reasonably good sense of if a customer comes on our app versus if we are on the merchant app or in the merchant’s shop, and what is the value that we are adding for the technology that we bring or for the consumer access that we bring to our merchants or the convenience that we bring to the — to the consumers. So we think that’s a reasonably good proxy for that and while UPI mix and we have mentioned that UPI, we expect to be three or four basis points. So that increasing would bring this down number slightly.

We think this is a reasonably good number to focus on and I think part of the reason to bring that out was to clarify that payments actually does make money on an aggregate basis on GMV. Because I think there was some misunderstanding, at least among some folks that, oh, payments, everything has to be at zero and we just wanted to clarify that that is not the case and that is certainly not the trend that wea see. And in fact, over the last few quarters, we have seen this number go up rather than down, right, and we see continued momentum in this number.

Rahul Jain — Dolat Capital — Analyst

That’s it from my side. Thank you.

Operator

Thanks, Rahul, The next question we’ll take from is from Sameer Bhise from JM Financial. Sameer, you can unmute your line.

Sameer Bhise — JM Financial — Analyst

Yeah, hi, thanks and congrats on the good numbers. So on the gross margin thing, do we expect that this is the new normal.

Vijay Shekhar Sharma — Founder and CEO

Sorry. On which number?

Sameer Bhise — JM Financial — Analyst

On the gross profit margin.

Vijay Shekhar Sharma — Founder and CEO

I’m sorry, what are you referring to exactly as gross profit margin. Are you referring to net payment margins, Sameer?

Sameer Bhise — JM Financial — Analyst

So basically, the contribution profit which is currently tracking 50% plus.

Vijay Shekhar Sharma — Founder and CEO

Yes, so there are no one-offs in this number — so — and we are ahead of our internal plans and the plans that we have sort of shared on the basis of which we had shared breakeven guidance, but there are no one offs in this number. So, we should assume that we would be at roughly these levels with potential upside from growth of net being faster than payments and those sorts of things. But there are no one-offs in this number. So, yes, this is a rebased margin number going forward.

And I should add that from quarter to quarter, we should — we may have fluctuations but on a long-term basis, we see this as steady or growing.

Sameer Bhise — JM Financial — Analyst

Yeah, and secondly, on the number of employees. I believe the material increase has come from addition of sales force on the employee cost side. We probably are at rough — I mean, how much more to go in terms of on-ground sales force additions?

Vijay Shekhar Sharma — Founder and CEO

Bhavesh you want take that.

Bhavesh Gupta — Chief Executive Officer, Lending

So, Sameer, the opportunity is fairly decently large for us as Madhur in the beginning of the comments said that, we added about three quarters back a lot of people. Today, while — when we see the opportunity in the future, we do believes that we will add not as much as the order three quarters back, but we’ll keep adding a few more, but what was the exact number, we haven’t done the EOP planning, but yes, there is going to be addition, but it’s not going to be materially large addition, it will be an addition, which should be positive in terms of getting us more devices, but incremental sales force than what we’ve done in the past.

Vijay Shekhar Sharma — Founder and CEO

Yeah, because we are already probably tracking roughly 30,000 kind of sales i mean on-ground sales team, which is why which is sizable, so.

Madhur Deora — President and Group CFO

Yeah, so it’s not actually that larger number. But yeah, it’s closer to that number, but the important part here is that when we look at the opportunity as Vijay mentioned of 10 crore, merchant as an opportunity and we’re sitting with 3 crore merchants today, we have a very-very long way to go. We are currently placed in about 400 to 450 cities and towns and our belief is that over the next two to three years, we would like ourselves to be in maybe 1,000 towns. So this penetration will be a bit more people led, but yeah, we will calibrate it as we see the growth but it will not be on the back of doing loss making growth but it’ll be on the back of making profitable growth.

Vijay Shekhar Sharma — Founder and CEO

And Sameer, if I could just add one thing is that the work that these sales employees do, it has very good payback period, especially when they’re going and putting Soundboxes and devices and so on, so the unit economics on that works really well. So it’s just a question of do you do upfront investment like we have done or do you sort of stagger it over time, right? But we have such high conviction that we have done the upfront investment and it goes a little bit back to the question that Sachin, was also asking is that, we have sort of gone from 2 million devices to 5.8 million devices, for that sort of growth you do end up front-ending the investments a little bit and that would be done.

Sameer Bhise — JM Financial — Analyst

Yeah, and the payment services to merchant piece, it’s clocking like 9% Y-o-Y, I’m sure, with the kind of devices that you added in last nine to 12 months, this number starts ratcheting up, but how does one see this?

Madhur Deora — President and Group CFO

Yeah, so I think Sameer, Vijay tried to answer that question earlier in that part that two things have happened. One piece that is last year we were blocking in certain GMV and hence certain gross revenues of merchants which are either not profitable or we were not very comfortable purely from a risk perspective. So we’ve done a lot of cleanup over the last two quarters. I think the cleanup started in —

Sameer Bhise — JM Financial — Analyst

In 1Q.

Madhur Deora — President and Group CFO

Yeah. And then we moved in quarter two and then we did some residual impact in quarter three.

Sameer Bhise — JM Financial — Analyst

So there is some impact this time around as well?

Madhur Deora — President and Group CFO

Yeah, but future going-forward, I think when you get into the next year, we do see that the cleanup that we had to do we have done and we will have some more been back coming back from those merchants, who on commercial basis had been left off because we do know our product is arguably the best in the country. So it will come back to us and more importantly is that our acquisition machine as you rightly pointed out is going to continue to churn a lot more GMV than what we’ve done in the past. So you will see growth coming into this factor and this will be more profitable growth than we’ve seen in the past.

Vijay Shekhar Sharma — Founder and CEO

And just to add to that, there are two other factors when you’re looking at a Y-on-Y comparison, Sameer, I apologize as I wasn’t clear earlier. One is obviously UPI incentive, so in December quarter last year we had UPI incentive, in this December quarter in the number that you are referring to for 9% Y-on-Y —

Sameer Bhise — JM Financial — Analyst

Yeah, it doesn’t include.

Vijay Shekhar Sharma — Founder and CEO

So that’s one difference. The second is, because Diwali was a bit later last year, some of our online merchants sales have — online merchants have sales in October and early November. Whereas this time, most of our merchants have their big sales in September and a few smaller sales in October. So that sort of some of that revenue got moved to Q2 this year versus being in Q3 last year.

Sameer Bhise — JM Financial — Analyst

Fair enough. This is great. Thank you and all the best.

Vijay Shekhar Sharma — Founder and CEO

Thank you Sameer, and thanks for the questions.

Operator

Thanks, Sameer. The next in queue would be Gaurav Kochar from Mirae Asset. Hi Gaurav, you can unmute your line.

Gaurav Kochar — Mirae Asset — Analyst

Yeah, hi, am I audible?

Vijay Shekhar Sharma — Founder and CEO

Yeah.

Madhur Deora — President and Group CFO

Yeah.

Gaurav Kochar — Mirae Asset — Analyst

Sorry. Many congratulations to the team on achieving operating profitability well ahead of guidance. Questions, firstly on the lending side. So while you have disclosed the penetration level in merchant loans as a percentage of device merchants, a similar like-to-like on the consumer side, if you can call-out what is the total, let’s say, the user base of the BNPL product, which is your postpaid. I mean, if you can give the number of users who have subscribed to postpaid and maybe PL as a percentage of that PL disbursed in the last 12 months as a percentage of that, how would that number be? And like you mentioned repeat rate of 45% in the case of merchant loans given that this product is also more than 12 months old now, what is the repeat rate, in the case of PL? And going ahead in terms of the sort of penetration PL as a percentage of your be BNPL customer-base, where do you see it tracking? So that would be first on the lending side.

I have another question, maybe I’ll ask it later.

Vijay Shekhar Sharma — Founder and CEO

Sure, Gaurav. So, Gaurav, we have said 8.1 million users have gone ahead and taken any form of credit, out of 8.1 million broadly I would say, closer to 7 million are people who have taken BNPL credit. And that number, we do see adding about 400,000 new users every month, right. So that is there and hence, the percentage of MPU still this is about less than 10%, and in terms of lenders’ whitelist which is closer to about 40 million, there is a very very long way to go. So that is obviously not holding us back in growing this business at 400,000 to 500,000 new users on BNPL every single month.

In terms of personal loan in terms of penetration, that number will be I don’t have an exact number but I can give you a range bound, that number is fairly small against the 7 million users who have BNPL. The number of users will have been pre-approved for a personal loan by lenders will be close to about 2 million all which I think about 300,000 to 400,000 users have taken and every month we see about 30,000, 40,000 users take PL from the BNPL pool. So again, that opportunity continues to be very-very large.

Gaurav Kochar — Mirae Asset — Analyst

You have the MPU numbers 4%, 0.8%, 5.2% [Indecipherable].

Vijay Shekhar Sharma — Founder and CEO

The third piece of question is in terms of PL to existing PL, I did mention early in the conversation that are closer to about 15% to 20% today. And as the book continues to keep maturing this ratio will stabilize at about 40%, 45% of existing customers taking another PL over the next 12 to 18 months. I don’t think that the BNPL customers taking PL that ratio is 40% of PL coming from existing BNPL customers, this ratio is going to change. So the stable use-case will be about 40% of PL coming from BNPL. Another maybe 40% coming from existing PL and the remaining coming from new to PL for the first time. So that is a very decent runway ahead of us for many many years to continue to penetrate into the current MTU and obviously MTU also going fairly at a good click.

Gaurav Kochar — Mirae Asset — Analyst

Great. Sure, so just to clarify the first form of credit that we give to the user is postpaid or do you directly give —

Vijay Shekhar Sharma — Founder and CEO

So it depends upon the lenders risk appetite, there are different funnels, the user can opt for BNPL or personal loan or credit card or merchant loan, that are different whitelist. But there is an upsell opportunity from BNPL to PL is not to say that you can’t take directly PL, obviously, the risk policy of lenders are more tougher, if you are coming absolutely new to a personal loan, whereas the risk policy for somebody who is upgrading from BNPL after repaying six months is a bit more lenient because they have seen the risk,play-out for that user the last six months.

Gaurav Kochar — Mirae Asset — Analyst

Got it. Sure, sure. Thanks. The second question is on the credit card side, we’ve added about 1.5 lakh cards in this quarter. Just wanted to understand was this a festive quarter and hence the run-rate is higher or you believe incrementally we can add 50,000 cards every month or 1.5 lahks for the quarter kind of run-rate in the near future. And also if you can give some color around what percentage of the total income on the cloud business would be coming from the credit card business and going ahead, let’s say, taking a two-year view assuming a certain number of cards, what would be the proportion of this in the cloud business?

Vijay Shekhar Sharma — Founder and CEO

So let me take the cards question in some detail and then I’ll hand it over back to Madhur. The cards business I don’t think our business is linked to any kind of estimate, but we don’t have an offline distribution of the card business, it’s purely on the digital journey is that customers are whitelisted by the issuers and they consume it. So yes, the short answer is that the run rate of 50,000 is not issued cards, it is activated cards, but we don’t track issued cards. Our belief is that we only want our partners to look at where the cards are getting activated on which they can get spends, and we can make money. So 50,000 is a run rate that we’ve been doing for the last couple of months and I believe it is run-rate is only going to become better and I had said in my conversation in the past that we aspire to look at about one million cards to be issued over the next 12 to 18 months and we’re sticking to that guidelines. Madhur?

Madhur Deora — President and Group CFO

Yeah, Gaurav. Credit card as a percentage of cloud revenue would be about 20% to 25%. And we do expect that to grow given that credit cards as a business are expected to grow faster, given the very low penetration that we have.

Gaurav Kochar — Mirae Asset — Analyst

All right, thanks. Just last question if I can squeeze in, on the sales force, we’ve added about 5,000 on average. There has been a 5,000 employee uptick in this quarter and I understand this would be largely towards the merchant business, our acquisition that has been so successfully doing. Just wanted to understand [Technical Issue] hello, am I audible?

Madhur Deora — President and Group CFO

Yeah, we lost you for a second, Gaurav. You can continue please.

Gaurav Kochar — Mirae Asset — Analyst

Okay, sorry. In terms of the device run rate we’ve been adding 300,000 every month or about one million every quarter, going forward, given that the headcount has increased, can we expect this run rate to improve going ahead?

Madhur Deora — President and Group CFO

The answer is yes. We’re already seeing metric for January become better over December. And we do believe that this number is going to become better than what we reported in the past.

Gaurav Kochar — Mirae Asset — Analyst

All right, that’s it from my side. Thanks and all the very best.

Madhur Deora — President and Group CFO

Thank you.

Operator

Thanks, Gaurav. We’ll have time to take one more question. And the last question of the session will be from Mr. Manish Shukla of Axis Capital.

Manish Shukla — Axis Capital Ltd. — Analyst

Good evening, and thank you for the opportunity. So first on the sales force of about 29,000, how many would be off-role?

Vijay Shekhar Sharma — Founder and CEO

So, Manish, we didn’t have off-role as a concept in sales force. So this team is on the rolls of either our subsidiary or directly [Indecipherable].

Manish Shukla — Axis Capital Ltd. — Analyst

So the cost that you report, it fully accounts for this entire 29,000 people?

Vijay Shekhar Sharma — Founder and CEO

Yeah, there it would be accretion in the front end. So they may not have spent a full time. So the guy may not be earning full-month salary etc. As you can imagine people who generally spend more than 30 days, 45 days they continued to remind the system for a long period plan on which we spend the entire salary and incentives. But yes, we will pay to these people even if they are staying for one day.

Manish Shukla — Axis Capital Ltd. — Analyst

Okay sure. The next question is the interchange from postpaid that you reported, that roughly works out to about 1.5% of the postpaid loans for the quarter, you think that’s broadly the right run-rate to look at it going forward as —

Vijay Shekhar Sharma — Founder and CEO

Yeah, so this is a good question you asked. So this used to be in when we started this business, maybe two years back, we had to incentivize merchants and users to either take or extra postpaid this number used to be higher, more 2.5%, 3%, we’ve seen over the last two years, number has now fallen to 1.5% and as per the new lending guidelines wherein this particular product has to be disbursed directly to the merchant through payment aggregators, hence it has become interchange. We do see that over a period of time with the scale that we’ve achieved, hopefully, this number should settle down more closer to where interchanges are for credit cards of low-value credit cards, but at this point in time, 1.5% is seemingly optimum the way our lending partner look at, but our endeavor is to make sure this number can fall down from 1.5% to maybe closer to 1% or 1.2% over a longer period of time.

Manish Shukla — Axis Capital Ltd. — Analyst

Okay, thanks. Then if I were to look at payment processing charges, excluding interchange, that works out to roughly about 55% of gross payment revenues. Is there scope to optimize this further because obviously, this has come down quite drastically over the last couple of years.

Madhur Deora — President and Group CFO

Manish, that’s not quite how we look at the business, so I would discourage you from looking at that as a metric, because by that metric you wouldn’t do credit card business, for example, right in credit card you can charge a merchant, let’s say, 1.5%, 1.7%, 1.8%, but a large chunk of that becomes payment processing costs, you still make a chunky margin, you still might make 10, 15, 20 basis-points on the GMV, which is absolutely worthwhile for us to do, but we don’t really sort of manage this number to say okay is it 55% or 60% 50%. So I wouldn’t quite look at it like that. I would look at it in the way that we have explained it in December and earlier today, which is what is that as a percentage of GMV overall, as an unmet payment margin which is revenue minus processing cost, what is that as a percentage of GMV, and that — for that we have sort of said we are currently at seven bps to nine bps and over time because of mix effect this might go down slightly.

Manish Shukla — Axis Capital Ltd. — Analyst

Okay, thanks. The last question, if I look at the growth in financial services revenue, that is less than the growth in value of the loans disbursed, so if one were to calculate, take rate as financial services revenue to loans disbursed, that has been trending down. What is causing that?

Vijay Shekhar Sharma — Founder and CEO

Revenue is of previous year’s loans and disbursement revenue is of this year’s loans. So it’s a combination of incentive of collection plus disbursement. Because incentive of collection of the previous year, which is 400% less. So — number would look small.

Manish Shukla — Axis Capital Ltd. — Analyst

Should one look at it a six month lag, a 12-month lag. What is that the right —

Vijay Shekhar Sharma — Founder and CEO

Length of credit, we are talking, average length [indecipherable] in different, different loan line items are 12,14 month.

Manish Shukla — Axis Capital Ltd. — Analyst

All right, understood. Thank you for answering this questions.

Operator

Thanks, Manish. That come to an end-of-the Q&A session. A reminder that the presentation discussed today, a replay of this earnings call and the transcript will be made available on the company website. Thank you for joining.

Vijay Shekhar Sharma — Founder and CEO

Thank you so much everybody for joining and it was great to have a detailed discussion. We’re available any which ways for any of the specific questions that you have. Thank you. Have a great day, bye.

Madhur Deora — President and Group CFO

Thank you very much.

Bhavesh Gupta — Chief Executive Officer, Lending

Thanks everyone.