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One97 communication Ltd (PAYTM) Q4 FY22 Earnings Concall Transcript
PAYTM Earnings Concall - Final Transcript
One97 communication Ltd (NSE:PAYTM) Q4 FY22 Earnings Concall dated May. 21, 2022
Corporate Participants:
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
Madhur Deora — President & Group Chief Financial Officer
Bhavesh Gupta — Chief Executive Officer – Lending Business
Analysts:
Sachin Salgaonkar — Bank of America — Analyst
Bhavik Dave — Macquarie — Analyst
Manish Adukia — Goldman Sachs — Analyst
Saurabh Kumar — JPM — Analyst
Piran Engineer — CLSA — Analyst
Karan Danthi — Jetha Global — Analyst
Nilang Mehta — HSBC Asset Management — Analyst
Shubhranshu Mishra — UBS — Analyst
Kunal Shah — ICICI — Analyst
Sumeet Kariwala — Morgan Stanley — Analyst
Rahul Jain — Dolat Capital — Analyst
Presentation:
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
Thank you everyone for joining. It’s an incredible moment for all of us that we have such a great quarter. I think India is clearly demonstrating trend towards moving mobile payment from Tier 1, Tier 2 revolution, it’s reaching Tier 2, Tier 3. We are seeing more number of consumers, more number of merchants in smaller Tier 2, Tier 3 towns taking mobile payment, as primary way of accepting money. I believe that UPI, which is India’s one of the most important technology platforms is going to grow even further in next few years, and I believe that Paytm has a advantage of taking leverage of UPI in driving more number of customers and more number of merchants on its platform.
The good thing is that more number of customers are coming on Paytm, and more number of merchants are coming on Paytm, and we are able to drive a monetization strategy on payment also. Important to note that we started to experiment with levying, adding some customers for charges on some products, and we have seen tremendous uptake of that great monetization on consumer side by adding platform charges. And we have seen on the merchant side that merchants have started to accept payment seriously and small merchants are ready to invest and are investing in our cloud and device less — device — device-led strategy of paying for monthly subscriptions.
So basically UPI finally have started to get monetized for us as a Company in terms of how we expected and how we see it, it being scaled further — in next further two quarters. You will see that consumer payment side of revenue will grow, you will see that merchant side device-led strategy, where merchants are paying for cloud and device subscription and rental is growing and is showing in this quarter’s number also.
It’s important to note that in payment, which is our primary bet, we believe that we will be able to earn all its costs and achieve EBITDA contribution standalone for payment also. Our bet is payments. Our bet is leveraging payment, disbursement and distribution of credit. I’m sure you must have noticed our phenomenal quarter numbers. I believe that payment is giving way to those customers and small businesses and merchants, who did not have access, but deserved credit meaning people, who could have had higher CIBIL score or could have got a better credit pricing from a formal financial institution. These are the kinds of people, who are getting access to large financial institutions, who are our lenders, and our lenders are getting, marquee lenders are getting access to these new customer bases.
I believe that credit, which is very, very infancy has started showing that it is a long-term sustainable and going to become pretty large business for us. Our bet is payment. Our bet is distributing credit, leveraging payments, data and access that we have. I believe our team, which is motivated by the opportunity, which is completely inspired to see the inclusion and access to the formal financial services to the people, who deserve, has done incredibly good in last quarter and this is just the beginning. You can see it from the results, and you will see it that in subsequent quarters and years, we will amplify our monetization contribution and profitability.
Like I publicly disclosed in a letter, we remain committed, and I’m even more convinced that we will be delivering operating profitability that is EBITDA before ESOP costs by September next year quarter. It is truly a privilege to make you explain our business and share our numbers.
I will give it to Madhur for giving you a detailed presentation, and we look forward to have an engaging conversation post that. Thank you.
Madhur Deora — President & Group Chief Financial Officer
Thank you, Vijay. I wanted to extend my welcome to everyone. Thank you for joining us, and thank you for following our performance closely.
In Q4, FY22 presentation, once again, we want to reiterate our mission is to bring half-a-billion Indians to the mainstream economy through technology-led financial services. Strong growth in revenue and profitability this quarter. Our revenue from operations for this quarter was INR1,541 crores, slightly more than $200 million. This was 89% year-on-year revenue growth similar to last quarter.
Our contribution profit was $539 million, 35% of revenue, just about [Phonetic] $70 million, and this contribution margin like in previous quarters has been growing very fast. It’s a huge step change from what we did last year and is up 210% year-on-year.
Our EBITDA before ESOP cost came out at INR368 crores, about [Phonetic] $49 million, growing [Phonetic] 24% of revenue, but this was an improvement of INR52 crores compared to the year before, and about INR23 crores compared to the quarter before.
In the year ending March ’22 for the full year, we did 77% growth in revenue. We did about 300% growth in contribution margin, and we improved our EBITDA by INR137 crores.
We have seen consistent growth in payments key operating metrics. Our monthly — average monthly transacting users is growing 40% year-on-year. We have obviously disclosed the April numbers separately, and currently standing at about 71 million. And this is roughly equally driven by the growth in new acquisition — new user acquisition, as well as consistently high retention of transacting users improvement in our cohorts.
Our GMV has grown over 100% year-on-year and now it’s sitting at INR2.6 lakh crores, and GMV from MDR bearing instruments grew 52% year-on-year. So we’re seeing overall platform growth, and within the platform, we are also seeing growth of GMV bearing instruments — sorry, MDR bearing instruments.
Our devices deployed, which is the strategy that Vijay was talking about earlier that merchants are we believe getting very well served by our devices, that is up to now 2.9 million devices, and we are adding roughly 800,000 to 900,000 devices a quarter now.
Our device merchants, this is very important for us is strategically important, our device merchants account for more than 75% of merchant lending disbursals in the last quarter.
This is our payment services, our payment services revenue grew 80% year-on-year. This was driven by two major factors, growth in MDR bearing instrument GMV, as well as payment devices growth. As you know we break up our payment services revenue into two parts, payment services to consumers, which grew 69% to INR469 crores. Two major factors, there is a growth in usage of Paytm app, like I mentioned earlier, the MTU has grown 40% year-on-year, as well as growth of bill payments use cases. We are seeing rapid scale up of adoption of bill payments use cases.
Payment services to merchants is up 90% year-on-year to INR572 crores. Again, growth in MDR bearing instruments both in the online space and the offline space. We are seeing the growth in payment devices like I mentioned earlier. There is a little bit of seasonality impact in the Q-on-Q trend purely because in the last quarter, we had the impact of — positive impact of festive season, but 80% payment revenue growth year-on-year.
Our financial services revenue was driven by healthy growth in loans disbursement. Our financial services revenue grew 340% year-on-year and is now doing INR168 crores or $22 million. Financial Services includes loans, equity trading and insurance. The major part of this is from lending, as all of you know. And I’ll turn over to Bhavesh to maybe walk us through the next few slides.
Bhavesh Gupta — Chief Executive Officer – Lending Business
Yeah. Thank you, Madhur. Good afternoon, everybody. Whether if you want to [Phonetic] move to the next slide, please. Yeah. Thank you.
So our total value of loans disbursed, as you can see, last quarter was about INR3,500 [Phonetic] crores, plus. We do believe that this trajectory that we’ve seen is coming on a back of a March ’21, when we were bit nascent in our business, so definitely the book looks very robust at 200% [Phonetic], but quarter-on-quarter also, as you can see we’re growing almost at about 50%, and we continue to see this trend very healthy across business and products.
Our number of loans is something that we are index ourselves on because our entire focus of the management team, of the payment business is to see that we are getting more and more merchants and consumers in the mainstream ecosystem of getting credit. So 1.4 million loans in March ’21. This grown to 6.5 million loans. And you must have seen our — our April announcements in which see this trajectory moving forward at about 2.6 million loans for the month. So purely from attendant basis also, this is continuing to be a business that we are seeing very good momentum and still at a very, very small penetration, overall MTU this time is 72 million.
Just going into bit of Paytm Postpaid, which is our BNPL had two important shifts over the last quarter. The quarter three, we had called out that we were at close to about 3.5 million merchants, who are accepting Paytm Postpaid. I’m glad to inform that now the acceptance of Paytm Postpaid has moved to more than 9 million merchants. This makes the acceptance of our consumption and credit instrument in the country, the highest ever because the credit card acceptance is still fairly low, and hence, Paytm Postpaid acceptance across 9 million [Technical Issues] plus and growing makes it a very significant move in making Paytm Postpaid, a marquee product for Paytm.
Overall on the disbursement side, we saw an 400% plus growth, INR2,183 crores was what we ended up disbursing. This trend again continues. As you can see quarter-on-quarter, we are seeing a very healthy almost at a rate of 100%. And we again see that as we move into April and beyond, we’re seeing this will continue.
Large part of 6.5 million loans that Madhur just spoke about earlier, have come through Paytm Postpaid, so 6.4 million loans are in the funnel of Paytm Postpaid. And we’re also seeing now, the ticket sizes started to grow because the book is mature with our partners. And we do find that on month-on-month basis, the ticket sizes started to marginally go up, and we do believe this trend will continue, and next quarter, hopefully we will see a much better ticket size, as the book is maturing.
The good piece here is that our personal loan business did last year at the same time was just in her infancy and the first quarter of launch has shown a massive growth from a very small business [Phonetic] of INR68 crores, now touching almost INR800 crores. And in the month of April, it has further grown very, very nicely in capacity.
The important part of the Paytm personal loan business it is, it is spend on the Paytm Postpaid customers and I’m happy to inform that almost 50% plus of our PL business is coming from the existing Paytm Postpaid customers, who are actually agreeing themselves and taking a personal loan. And personal loan continues to be a product in which we have a very decent ticket size almost touching INR100,000. And we also have a very good take rate because this is a product in which we are not only making the service revenue and distribution revenue, but also we have a decent portfolio upside.
The third business for us is merchant loans. Merchant loans has been a bit wobbly thanks to COVID, wherein we’ve had some stop, start arrangement in merchant loans. We’ve had the quarter four, as the only quarter, I would say, wherein some part of January, in which, we again had a small scare of over grade 3. But if you look at the quarter four, this is a sign of how this merchant loan business been performed for us. I’m again, happy to inform that we’ve seen almost 200% growth in the merchant business.
This is a material business. We have been doing this business for some more than two years. So the book has been rewarded by almost 2 times. This INR565 crores is largely coming to us from our devices merchants. 78% of our business that we are originating is from our devices merchants. And as devices business is gaining momentum and spend, we do believe that this particular trajectory of growth will only become better. And if April numbers is had to go by, this is a — this is a business, which hopefully in quarter one of next fiscal should start looking even better than what we’ve seen in quarter four.
The — another important aspect of this business has been that we are already seeing a great adoption of the product with our merchants. More than 50% of our value of loans that we are disbursing is coming as a second loan that the merchant is taking on our platform. So it does two things for us. It demonstrates stickiness of the merchant on the Paytm premium payment platform. So we do continue to get subscription revenue because these merchants are devices merchants, and B) the merchant appreciate the product and is coming back to us and making sure that we’re getting the second loan and maybe hopefully the third loan of the business.
Quick sense on the portfolio. I do understand that we all understand this part that Paytm does not take any kind of credit risk. Our model is very simple that we are distributors and marketeers of loans. We do servicing of loans. And we also have a collections, outsourcing agreement with our lending partners on most of our businesses through which we have an upside that we get if the portfolio was to perform better than what the lender would expect to.
Quarter three, we declared this metric. I’m happy to inform that quarter four metric continues to be as robust. We’re not seeing any deterioration of any kind of metric that lenders are actually looking at this portfolio for. These are indicative metric because we manage collections, but we understand the bouncing that is happening, we also understand the bucket resolution that are happening. The expected credit loss the number that we are quoting here is a number that cumulatively we understand from our partners’ is what they are providing for.
I can only say this — said in — in utmost confidence so far what we’ve seen over the last enormous static pool basis that the net credit loss is much lower than the expected credit loss being called out here by our partners, but we continue to maintain a very conservative approach in making sure that our partners are clearly aligned towards the risk practices that they would like the portfolio to be generated for, and hence always maintain the ECL number, as far as the benchmark is concerned, while our incentives are linked to the portfolio performance of net credit losses. Madhur, back to you.
Madhur Deora — President & Group Chief Financial Officer
Thank you, Bhavesh. A quick word on our commerce and cloud business, this grew 61% year-on-year for revenues, roughly INR320 crores in the last quarter. The cloud business grew 88% to INR217 crores. We saw strong growth across all of our business lines, particularly advertising, credit card and cloud services.
Our commerce business grew 24% year-on-year slightly slower than the rest of our businesses. The main reason for that was the impact of Omicron for three weeks or four weeks, obviously, travel and entertainment get hit the most. There is a bunch of outside data, for example, amount of domestic air travel and so on, which get — which sort of validates the fact that travel and entertainment sectors were impacted in the last quarter despite that we grew 24% year-on-year. Our Q-on-Q impact was an account of festive season in the previous quarter.
These are our financial numbers, which all of you have available in our earnings release, I just wanted to call out a few things. Our — excuse me, our payment processing charges grew only 52% year-on-year, whereas our payments revenue, as you saw earlier grew about 80% year-on-year. So that is a significant growth [Phonetic] that we are seeing contributing to leverage — to leverage and profitability.
The three main reasons. We continue to optimize on transaction routing to lower cost payment gateways. We are seeing great improvements in our transaction rates with our partner banks. So we are in active discussion, negotiations with them. And we’re also seeing an increase in share of low cost instruments in mix, including for wallet loading. So UPI benefits us, when UPI customers use — when customers use UPI for wallet loading that is financially beneficial for us.
On contribution profit, we are seeing a strong growth in contribution driven by margin improvements in payments, largely because of what I mentioned earlier about payments processing charges not growing as fast as revenues, and which [Phonetic] also seeing a huge increase in share of high margin offerings such as lending and cloud.
Quick bridge from contribution margin to EBITDA, like I mentioned earlier, our EBITDA improved by 12% year-on-year. Our marketing cost has declined 21% on the quarter-on-quarter basis, despite investments in sponsorship because we had a lot of cricket matches last quarter and growth in user base. Q1 has also got a lot of cricket including IPL and international matches, so we expect marketing costs to remain high in this quarter.
Employee cost, we made significant investments in our — in FY22 in our sales team for merchant acquisition and in our technology teams, which is why our employee cost went up 64% year-on-year, on the full year basis, it went up 51% year-on-year, and we’ll talk a little bit more about the trends there. We do believe that our current headcount is sufficient to support our growth plans for next year. So that’s an important phase of our Company, where we added a large number of employees in the last year, but we don’t expect our headcount to go up from here. And as a result of this, like I mentioned, our EBITDA improved by 12% year-on-year. As a percentage of revenue, it grew from — it improved to 24% from 51%. So obviously, we are seeing a step change in EBITDA margin as well.
Finally, just to wrap up. We are on track to achieve operating profitability by September 2023 quarter like Vijay mentioned, as defined by EBITDA before ESOP costs. I want to just summarize some trends in our business. We are seeing consistently growing and engaged customer and merchant base like Vijay mentioned. Customer monetization is gaining momentum. We are seeing that growing engagement on our platform, regardless of which payment instrument is through, gives us monetization or opportunities across payment, lending and commerce.
Similarly on the merchant side, merchants who start their journey from free products such as QR-code are increasingly adopting device subscriptions and lending, which are obviously monetize the new products for us and very high contribution margin.
We are also seeing attractive upsell opportunity via lending. We disclosed earlier this week that we would — we have now hit the run rate of INR20,000 crores of annualized lending disbursals through our platform.
On our revenue growth and operating leverage trends, like I mentioned we have seen 89% growth year-on-year. We expect the strong momentum in revenue growth to continue. We’re seeing clear trends in contribution margin improvement 21% same period last year to now 35%. And we are saying now that we expect to see continued improvements in contribution margins.
On indirect expenses, I want to call out these two investments that I mentioned on the previous page, marketing expenses to drive MTU growth at 40% year-on-year and employee cost to drive device deployments to somewhere between 800,000 to 1 million devices per quarter and investments in technology. And we are saying now that we expect moderation in indirect costs growth going forward, and we expect the trajectory of EBITDA improvement will steepen starting next quarter.
I finally wanted to give two quick updates, one is SIP [Phonetic] sort of clarification matter. You will see in our income statement below net profit in other comprehensive income that we have seen a gain of $125 million that is because of revaluation of our stock acquisition right in PayPay that is not impacting our net income positively, but it is impacting our other comprehensive income positively. We believe that our stake in PayPay is very valuable.
Secondly, a couple of weeks ago, we had done a press release that we are going to go down the general insurance route through an organic route. Our Board last night has approved that we will invest INR950 crores over the next 10 years in our general insurance venture. So those are two material updates, which I wanted to share towards the end of this call.
And with that, I’ll hand it back to the moderator.
Questions and Answers:
Operator
Thank you, Mr. Deora. We will now proceed to Q&A. [Operator Instructions] With that the first question of the session would be from Mr. Sachin Salgaonkar from Bank of America. Sachin, your line is unmuted.
Sachin Salgaonkar — Bank of America — Analyst
Thank you for the opportunity. I have a few questions. First question, Madhur, if it is possible for you to give a breakup between UPI and non-UPI GMV. And to Vijay’s point in the opening remarks, well, where you mentioned that you guys are experimenting that some levying surcharges and some of the other things. So a rough take rate on both of them would be helpful?
Madhur Deora — President & Group Chief Financial Officer
Yeah. So Sachin on UPI versus non-UPI split, we have not disclosed that. We have told folks that it is UPI is slightly more than 50%, but that is not a number that we are disclosing.
On levying of convenience fee, this has been sort of an ongoing activity. For example, we started with levying charges on credit card to wallet add money and which is expanding the scope of that wherever we think the customers are happy to pay for the convenience that we offer. I think the best thing to get a sense of that is to just look at the difference between our non-UPI GMV growth and our revenue, vast majority of that comes from increase in take rates.
Sachin Salgaonkar — Bank of America — Analyst
Got it. Thank you. Second question, clearly a great work in terms of reducing the payment processing charges. So the question out here is how much room for further optimization and how low could this go, as a percentage of GMV?
Madhur Deora — President & Group Chief Financial Officer
We expect to, as a percentage of revenue and as a percentage of GMV for this to continue to improve for the 3 — same three factors that I mentioned. Those trends are ongoing trends. Transaction routing continues to keep getting better. Our transaction rates continue to get better and transaction mix continues to improve in our favor. So we believe that all three trends should continue to contribute, and our payments revenue should grow faster than our payment processing charges.
Sachin Salgaonkar — Bank of America — Analyst
So would this be the primary line, which shows perhaps the biggest delta going ahead from a cost perspective?
Madhur Deora — President & Group Chief Financial Officer
When you think about payment contribution margin, that is correct. Obviously, there are other reasons why contribution margin is growing very fast, which is the mix of our financial services business, primarily lending going up, as a percent of revenue and that is a high margin business for us. And secondly, we are seeing, generally speaking, improvements in our commerce and cloud business, as well as improvements in margins also in our commerce and cloud business.
Sachin Salgaonkar — Bank of America — Analyst
Got it.
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
I also would add Sachin that when I was talking about UPI, and you were asking a earlier question that more number of merchants are ready to pay cloud device rental subscription, which, because that is coming in, the margin looks increasing and that means that our revenues are not dependent on MDR. More and more payment revenues are moving towards large number of customers, merchants paying for the projects.
Sachin Salgaonkar — Bank of America — Analyst
Got it. It’s very clear. Third question perhaps is to Bhavesh on this entire rising interest rate, what we are seeing right now, and completely, I understand, you guys are more as a distributor, but the general consumer, who ends up getting the loan is at some level a risky base given that traditional channels are not lending. So what kind of an impact generally you see on this base and to your numbers going ahead in this rising interest rate environment.
Bhavesh Gupta — Chief Executive Officer – Lending Business
So Sachin, two clarifications I just want to make. One piece here is we are not only focused to — new to credit or people, who are typically at the bottom of the pyramid. Important part here is that our 100% of our PL business is to already people, who have taken a loan, and our average bureau scores continued to be in the range, which is called prime range by the banks and non-banks.
Postpaid and merchant is where 75% of our customers are already credit tested, and they also continue to be in the range called prime range by the bank, which is generally arguably a number of about 700, 725 [Phonetic]. So a very small percentage of our portfolio is new to credit, which gets significantly augmented by the Paytm payments data, which actually helps the banks and non-banks to underwrite them and they continue to perform — perform reasonably well.
To your specific question, rising interest rates, very honestly the unsecured credit market is — has more resilience to increase of interest rates because those margins and spreads for banks and margin and spreads for distributors like us are fairly decent. So far with the 40 basis point increase in rates, we haven’t seen none of our like lending partners come back and increase rates to our consumers and merchants. I do believe that the rates were to further go up, by let’s say 100 basis point, we could see maybe 25 basis point, a 50 basis point increase of rates to the end consumers and merchants. But given the ticket size that we operate in, it does not have any impact on our commercials or has any impact on the demand by the consumers.
Sachin Salgaonkar — Bank of America — Analyst
Thanks. That’s very clear. And the last question, perhaps Madhur, if you guys could give a little bit more color on the ban on RBI on payments bank for acquiring new customers, the time frame for resolution and what kind of an impact would we see in near term because you guys are not allowed to acquire new customers out there.
Madhur Deora — President & Group Chief Financial Officer
I’ll let Bhavesh answer that question [Speech Overlap].
Bhavesh Gupta — Chief Executive Officer – Lending Business
Sure. So Sachin, the Paytm Payment Bank, as you know is an associate of One97 Communications. So we as investors of Paytm Payment Bank, we have a clear understanding of what the bank is currently engaged with the Reserve Bank of India.
Two updates in that regard. Number one piece that is that the process, where the regulator had laid down for the bank is working in a time-bound manner. So we do believe that the broader life time limit the bank has been given, which is between three months to five months, the process, hopefully should get over. But we obviously are dependent upon the audit and everything else that the bank is expected to deliver and the bank is fully prepared to deliver it and has been able to do a wonderful job the last 30 days of demonstrating its intent and also the outcome as and when the entire RBI audit is completed.
To the second question that you have said about the impact, so there is no impact to existing customers of the bank. The existing customers of the bank continued to manage their wallets or bank account, debit card, net banking as they were doing earlier. As you know that Paytm Payment Bank has a very, very large consumer base, and hence their ability to really churn that consumer base and merchant base for more acquisition is an objective, which is always a primary objective of the bank, and they continue to do that job far more effectively and efficiently now.
UPI continues to be something, which the bank is allowed to do. So we continue to on-board new customers on Paytm app or customers, who want to come and add UPI handle to that payment, and hence the customer acquisition is happening. Purely new wallets and purely new CASA [Phonetic] accounts is something which is currently not allowed. To that extent the impact has been exceedingly — extremely marginal, and you could see that in our April announcements on MTU, that our MTUs have continued to grow.
Sachin Salgaonkar — Bank of America — Analyst
Okay. Pretty clear. Thank you, guys.
Madhur Deora — President & Group Chief Financial Officer
Thank you, Sachin.
Operator
Thank you, Sachin. The next question is from Mr. Bhavik Dave from Macquarie. Bhavik, your line is unmuted.
Bhavik Dave — Macquarie — Analyst
Yeah. Hi, am I audible?
Operator
Yeah.
Bhavik Dave — Macquarie — Analyst
Yeah. Hi. Just a couple of questions. One is if you can clarify, what is the kind of government reimbursements that you would have got like we spoke about it last time as well, but this time around, is there any moneys that came during the last quarter, has got amortized this quarter as well in the revenue line item. And what is the quantum that we got for FY22 for the UPI reimbursements.
Madhur Deora — President & Group Chief Financial Officer
So Bhavik, the reimbursement was received during last financial year and for each of the quarters, and there is a small amount that did come in Q4. We haven’t quite disclosed that amounts, and we’ll refrain from doing that. But it was not a material movement to our sort of revenue trends.
Bhavik Dave — Macquarie — Analyst
Sure. Second question is to Bhavesh sir, just to understand this postpaid product better and you have like 4 million odd customers here, just want to understand about [Phonetic] the INR2,000 crore that we disbursed, I understand this is a limit — this is a product, where customer might or might not pay on time and revolve over like two months, three months. Just want to understand out of the people, who take this credit how many revolve and extend the credit for like a longer duration versus just paid at the end of the month. If you could — color…
Bhavesh Gupta — Chief Executive Officer – Lending Business
Less than 5%, Bhavik.
Bhavik Dave — Macquarie — Analyst
Sorry.
Madhur Deora — President & Group Chief Financial Officer
Less than 5%.
Bhavik Dave — Macquarie — Analyst
Revolve, is it?
Bhavesh Gupta — Chief Executive Officer – Lending Business
Yeah. So there is not — so we do not have on option of revolve.
Bhavik Dave — Macquarie — Analyst
Okay.
Bhavesh Gupta — Chief Executive Officer – Lending Business
Revolving the credit card feature.
Bhavik Dave — Macquarie — Analyst
Right.
Bhavesh Gupta — Chief Executive Officer – Lending Business
The consumers basis their [Phonetic] risk profile are given an option by the lenders that they can convert their outstanding into an EMI. So that [Indecipherable] figures not 100% of borrowers, who offer postpaid have an option to convert.
Bhavik Dave — Macquarie — Analyst
Okay.
Bhavesh Gupta — Chief Executive Officer – Lending Business
The ones, who have an option to convert, a very small percentage convert their product. I repeat again, for the benefit of everyone, Paytm Postpaid is positioned as consumption credit product. And hence, if you see the ticket size of INR3,500 now moving towards INR4,000 is 85% of the spends are towards consumption spend, grocery, fuel, medicines, etc, etc. And hence, the consumers are more willing to pay at the end of the 30-day period versus revolving or converting to EMI. So we see that number to be less than 5%.
Bhavik Dave — Macquarie — Analyst
Sure. And just another point on this is, when we see the disbursement growth right like quarter-on-quarter has been extremely good, like you mentioned 50%, 60% kind of growth. But when you look at the revenue momentum right that’s only 30%, 35% kind of growth that is visible there. So any reasons why this slowdown on quarter-on-quarter basis when it comes to disbursement versus revenue growth on the lending business.
Madhur Deora — President & Group Chief Financial Officer
Yeah. So A) the entire revenue is not attributable to lending, but at the same time, a disproportionate portion of the revenue is attributable to lending. The mix is an important factor. As we have said in the past, postpaid has a marginally lesser revenue or take rate than PL and merchant loans. Any quarter, where we see a marginal change in the mix, we will find a very small reduction in the revenue, as a percentage overall, and hence it would appear to be small. Quarter four, we did see postpaid, as a percentage of our total disbursement increased much beyond 50% of corporate total disbursement, and hence that’s a small impact; and B) the portfolio incentives is also deferred. So the more business we are doing, more we are deferring our portfolio incentive, and hence, we will see some back loading of incentives to that extent.
Bhavik Dave — Macquarie — Analyst
Understood. And just on the payments business, right, like I remember during IPO, we mentioned that out of the 50 million, 55 million, then customers used to around 30%, 40% or around 50% of the customers are magic [Phonetic] customers right, like who have, the used cases is five, six transactions per week. What would be that commensurate number now with 70 odd million MTUs that we have. And that time, we mentioned that almost 30% of the customers used to be new to credit 30% with thick size and 30% with thin size, how has that mix — how is that mix now? And what is the kind of penetration that we’ve already done within the 70 million, if you could just talk about that?
Bhavesh Gupta — Chief Executive Officer – Lending Business
Yeah. So Bhavik, 72 million MTU, we have now delivered 4 million. So that number stands as approximately 5%…
Bhavik Dave — Macquarie — Analyst
Right.
Bhavesh Gupta — Chief Executive Officer – Lending Business
Of the MTU. We are seeing and that on a month-to-month incremental basis, we are able to add close to about 400,000 new postpaid users. So this number is looking at a very secular trajectory. We haven’t seen that number change materially at a downward trend. We only seen an upward trend to that number.
Bhavik Dave — Macquarie — Analyst
Sure.
Bhavesh Gupta — Chief Executive Officer – Lending Business
We continue to deepen our relationships with our existing and new customers.
From a lending — lenders perspective, they continue to have more than half of our MTU base white listed for postpaid. So that funnel is very, very strong for us. I think we have seen a small reduction instead of 30%, 30%, 30% [Phonetic], we’ve seen about a quarter of our customers are new to credit and the new customers continue to be credit tested etc.
So we’re just seeing as the portfolio is maturing, as the — and as the product is now getting accepted at 9 million shops, there are more and more good quality customers, not just good quality purely from a credit profile perspective, but customers, who are more revolved, who have credit cards with them, but they would — they love the product and the ease and convenience of the product, and then, we are seeing a lot more people, who are owning credit cards coming and opting for Paytm Postpaid and which is a very good sign for this business.
Bhavik Dave — Macquarie — Analyst
Sure. And last question is, sir, on the credit card itself. I remember, we mentioning that, that is a part of cloud. When does it normalize or what — how do we think about this business right like that, that revenue that we originate cards for like HDFC Bank or SBI cards or Citi sits out in the cloud business, if I’m not wrong. When — do we plan to normalize it to — towards the lending business or could it continue to — will it continue to be in that cloud business segment revenue line item?
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
Maybe I could take that.
Bhavik Dave — Macquarie — Analyst
Yeah.
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
That business is run by our lending team. So it does — it is get operated by Bhavesh and his team. It is purely a sort of auditor discussion point that it sits in cloud. We will have discussions with the auditor later this quarter to see if they have a preference for that be in cloud or nothing [Phonetic]. We do understand that from a — just an investor valuation perspective, it might be better to have that in lending.
Bhavik Dave — Macquarie — Analyst
Right.
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
But of course, it is [Phonetic] subject to our conversations with auditors.
Bhavik Dave — Macquarie — Analyst
And any quantum that what would be like the normalized like pure cloud-based revenue versus when we strip out that credit card business, how would the cloud income look like, any color, any number that you could state?
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
If you do break it out by [Technical Issues], we show historical numbers as well.
Bhavik Dave — Macquarie — Analyst
All right.
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
Let’s just hold back on that because that’s not a number, which we have distilled so far.
Bhavik Dave — Macquarie — Analyst
Sure. All right. That’s helpful. Thank you.
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
Thank you so much.
Operator
Thank you, Bhavik. [Operator Instructions] Next question would be from Mr. Manish Adukia from Goldman Sachs. Manish, you can unmute your line.
Manish Adukia — Goldman Sachs — Analyst
Yes. Hi, good afternoon. Thank you so much for taking my questions. My first question is on the payments business and the monetization there. So again on the reported basis, the take rates were stable quarter-on-quarter, but if I let’s say this strip out UPI and based on my estimate the take rates even excluding devices seems to have seen a pretty sharp jump, and this was again on the back of the jump that we saw last quarter. So can you just help us understand again, as to you know, what’s driving that take rate on non-UPI higher again? And how should we think about the sustainability of that? And that will be my first question.
Madhur Deora — President & Group Chief Financial Officer
Yeah. Maybe I’ll start with that and Bhavesh can add as well. I think there are two major reasons, one is mix effect of various instruments that we process in our platform; and the second is our growth. And one of the key things that’s happening in Paytm is that we are capturing a huge — a larger and larger amount of non-UPI payments in the offline world through our devices strategy. So out of the 3 million plus devices that we have deployed, a fair number of them are card missions, and which basically we did not do as a business, two years or three years ago. And as a result, the overall share of all card transaction that happen in India in the offline world that goes through Paytm has gone up very meaningfully. I don’t know, Bhavesh, if you wanted to add something to that.
Bhavesh Gupta — Chief Executive Officer – Lending Business
Yeah. So Manish, two more trends that I can share with you. One piece here is that our penetration is continuously increasing in the middle market [Phonetic] and enterprise segment, which is basically on the ADC [Phonetic] side. And the more and more, we are able to penetrate in that area not just we are attracting a lot more credit card and debit card penetration on which we make a decent net take rate, but we’re also doing a lot more EMI aggregation now than we were let’s say, doing a quarter back.
And you will see this trend continue because it’s not just Paytm is has its own EMI product and Paytm Postpaid product, but we also aggregate for other issuers of credit card specifically and being built [Phonetic] players on our devices. Now, this trend is very profitable, the take rates are generally much higher than the net take rate that you get on a credit card business and that’s been a delta that we could see in the system.
The second big trend that we’re seeing it is that, well, consumers coming and making payments using credit cards and other credit bearing instruments in our platform are increasing, and they’re happy to give us much higher margins and we’re also able to charge the merchants a bit more higher margins on the overall integration and convenience that we’re able to provide to consumers and merchants, and that’s really seeing a very good uptake for us and demonstration of great product that Paytm had build on itself [Phonetic].
Madhur Deora — President & Group Chief Financial Officer
[Speech Overlap] And just one other thing to add, and I know you asked about how should we think about these trends. I think the right way to look at it is the growth of payments revenue versus the growth of non-UPI on our platform, that gets you sort of work closer into a picture of how we are doing. And we have said before and this trend continues that we expect that to be broadly stable. And if you could — if we could really do a really good job, then maybe marginally increase.
Manish Adukia — Goldman Sachs — Analyst
Thank you, Madhur. So Madhur, just if I can confirm based on your and Bhavesh’s response whatever we’ve seen in the last two quarters in terms of uptake in the take rate, you’re saying it’s more structural rather than a one quarter phenomenon. There is no reason to believe that in the near term, it will come down again sharply. Is that a good understanding?
Madhur Deora — President & Group Chief Financial Officer
Just to clarify, I think we don’t exactly look at the business off on the basis of payments revenue divided by GMV. We look at it on the basis of how is our payments revenue tracking relative to the growth of non-UPI GMV. So on that basis, we believe that there is no structural decline, which is to say that the fact that there is a lower zero cost instrument in the market, it doesn’t mean that we cannot monetize the other instruments. In fact, we do monetize them. Customers are continuing to use them and more and more, and more, and we monetize them and they’re quite profitable.
Manish Adukia — Goldman Sachs — Analyst
Sure. Thank you. And my second question is on — just the profitability and guidance, which you’ve again reiterated for September 2023, of course, the macro environment has become increasingly difficult in the last few months. So as we think about from here to the next let’s say, five quarters or six quarters before you let’s say, reach profitability, what are, let’s say the one or two key things that investors and analysts should monitor, as we think about your path to profitability or what are, let’s say, the key drivers in your view that we should be thinking about for Paytm to reach profitability in the next six [Phonetic] quarters?
Madhur Deora — President & Group Chief Financial Officer
I think like I was touched upon in the last page of my presentation, increasing contribution margin that is being driven by improvement in margins in the payment business and the mix effect, particularly with respect to and then, then becoming a larger percentage of our revenue. So that’s one. And the second is the growth of our indirect expenses would slowdown, right. It’s continued to grow, but they would slowdown. And we have also said towards the end of the presentation that we expect the improvement in EBITDA on a sequential basis to steepen.
Manish Adukia — Goldman Sachs — Analyst
Sure. Thank you so much for taking my question. All the best.
Operator
Thank you, Manish. The next question is from Mr. Saurabh Kumar from JPM.
Saurabh Kumar — JPM — Analyst
Yeah. Hi. So just had two questions, one is on this indirect expenses model. So I mean, you guided that the employee cost will not go up materially. So for the full year, should we expect a number, which is something similar to Q4 annualized? And what would be your guidance for the indirect expenses growth. And if you could just break up between these four items you have, and how should we think about each of those line items. That’s first.
And the second is, again on the guidance. So the September ’23 guidance would assume that by that point the e contribution profit should be in the 40%, 45% odd ballpark? Will that be a fair assumption? These are two. Thanks [Speech Overlap].
Madhur Deora — President & Group Chief Financial Officer
Yeah. So on your first question, just to clarify, we have said employee headcount should not go up. We obviously, we give annual appraisals to the employees to do really well and so on. So there might be some uptake on employee cost. But I think it’s important given the amount of headcount that we added last year particularly in those two areas, technology and offline sales that we did last year, we wanted to clarify that we feel like we’re fully capacitized in those areas. So it was more a headcount comment.
In terms of growth, we do expect it to moderate across the board indirect expenses. So our indirect expenses last year in marketing and indirect expenses grew about 60% year-on-year. Our technology and other expenses grew between 30% and 40% year-on-year. So we expect all of those line items to moderate.
What are the key drivers to get to your second part of the question, one of the key drivers for us to get to profitability is the improvement in contribution margin, which I was referring to in the conversation with Manish as well. I don’t want to call out specific numbers, but yes, it will be one of the key drivers and we are confident of improving contribution margin.
Saurabh Kumar — JPM — Analyst
And Madhur like when you say moderate or what should we think about what is moderate like is 30% moderate, is 40% moderate?
Madhur Deora — President & Group Chief Financial Officer
I think if you work backwards from — I think if you work backwards from the EBITDA numbers that — I’m sorry, EBITDA breakeven point that we have made, then you sort of get to what those indirect expenses look like six quarters from now.
Saurabh Kumar — JPM — Analyst
Okay. Thanks.
Madhur Deora — President & Group Chief Financial Officer
Thank you, Saurabh.
Operator
Thank you, Saurabh. The next question is from Mr. Piran Engineer from CLSA. Piran, you can unmute the line.
Piran Engineer — CLSA — Analyst
Hi, am I audible?
Operator
Yeah.
Piran Engineer — CLSA — Analyst
Yeah. Hi, thanks. Congrats on the quarter. Just a couple of questions. Firstly, in our revenues from services to merchants, could you give us a broad mix of the subscription-related revenues and the payments-related revenues. And I’m asking this because we’ve seen the number of devices, we deployed go up 50% Q-o-Q, but our merchant revenues are still down Q-o-Q.
Madhur Deora — President & Group Chief Financial Officer
Yes. So we charge anywhere between $2 and $2.5, about INR125 to INR150 on a blended basis — sorry which had a INR125 for our Soundbox, and then it sort of goes up from there for various types of devices. On an average, it’s about INR150 to INR175 a device, depending on the mix maybe INR200 a device. So that’s the trend. You’re right…
Piran Engineer — CLSA — Analyst
No, no — sorry, Madhur to cut you short of. Out of our INR575 crore revenue, what percentage of that would be subscription-related.
Madhur Deora — President & Group Chief Financial Officer
Yeah. So we haven’t given that breakup. But what I was trying to help you with is that, yes devices subscription revenue did go up last quarter. The Q-on-Q is purely because of huge amount of demand that we see in the festive season, right. So if you are trying to adjust for seasonality, yes, there is a seasonal impact in payment services to merchants, which is pretty significant both in offline and online. On an year-on-year basis, that number is up 80%. I know I’m not sort of directly giving you the exact number that you want, that you’re seeking, but that might be a way to think about how to model this.
Piran Engineer — CLSA — Analyst
Okay. That’s fine. So — but then that leads me to my next question. Our total GMV is flat or slightly up 3%, 4% and payment, sorry, merchant-related transaction volumes are down. So does this basically mean that bill payments by consumers on the app is up meaningfully Q-o-Q because what balance is the total GMV number otherwise.
Madhur Deora — President & Group Chief Financial Officer
Yeah. That’s right. We — our consumer engagement on our app, the transactions, GMV revenue did see a very, very sizable improvement in Q4.
Piran Engineer — CLSA — Analyst
Okay. And the consumer engagement is essentially bill payments right or could there be some other sort of —
Madhur Deora — President & Group Chief Financial Officer
Yeah. Vast majority of it is bill payments. The customers, they also add money to Paytm wallet on our app. Obviously, they also do money transfers on our app. But if you’re trying to compare GMV and revenues, yes, there was significant GMV growth in our consumer app, and there was significant revenue growth in our consumer app as well.
Piran Engineer — CLSA — Analyst
Got it. And my next question is on UPI Lite, how do you — how do you sort of think about the future of wallets when you have UPI Lite?
Madhur Deora — President & Group Chief Financial Officer
Vijay [Indecipherable].
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
Yeah. The UPI Lite is a client side storage of money for avoiding the failures of UPI. If you would have noticed, there were in IPL days, UPI system was officially kept on hold that you cannot do balance etc. So this is the method that UPI is taking at the offloading traffic. As far as used case of wallet is concerned, wallet is used by customers, who transfer money from their bank account to a wallet instrument, so that, that can work.
I mean, as a product user, I can say that wallet serves lot many more different, different requirements, for example, like the same wallet balance used in NCMC card, FASTag, offline payments, online payments and so on, so forth. While UPI Lite will be trying to solve the throughput requirement that bank CDR [Phonetic] system solve. So they are two different products.
Piran Engineer — CLSA — Analyst
No. But sir, if the threshold for UPI Lite goes up from say INR200 to say INR500 or INR1,000 and your wallet average ticket size is also around 400 [Phonetic], 500 [Phonetic] so then essentially the use cases off wallet can be also solved with UPI Lite right, online payments, offline payments, etc. Do you not see this as a threat at all?
Madhur Deora — President & Group Chief Financial Officer
At least not yet. We don’t see it as I particularly said [Phonetic] and the product will follow Lite [Phonetic].
Piran Engineer — CLSA — Analyst
Okay. That’s fair. Thanks for taking my questions and all the best.
Madhur Deora — President & Group Chief Financial Officer
Thank you.
Operator
Thank you, Piran. The next question is from Mr. Karan Danthi from Jetha Global. Karan, you can unmute your line.
Karan Danthi — Jetha Global — Analyst
Hi, Paytm team. I have two questions. One is, you know you mentioned the — so these deferrals that will come through. Could you perhaps add some more color there, there is the value of those deferrals, the timing of those deferrals because it feels like it could be quite meaningful and help us perhaps even get to profitability earlier if we get that upside. So I just want to understand if that’s also baked into your September ’23 timing?
And then a second question, I had was related to collections. I just want to understand what is your collections related opex and how does that scale from here? And can we scale it in a more moderate fashion even as the lending book keeps growing at this rate, and I know, we do digital collections to the extent possible. But I’m curious as to [Technical Issues] certain levels in terms of the size of your lending book whether that has to change?
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
And I will take the first part.
Madhur Deora — President & Group Chief Financial Officer
Yeah.
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
Our September quarter breakeven is explicitly and completely based on operating revenues. Any extraordinary charges like ESOPs or any extraordinary gains, if there are, are not at all either part of the plan or even calculated or factored in. It’s completely absolutely operating revenues and operating cost basis and that’s what you should factor in. Thanks. Rest I think, it’s [Indecipherable].
Madhur Deora — President & Group Chief Financial Officer
Yeah. Karan, if you — if I understood your question correctly, the first part, which is when you’re talking deferrals, you’re talking about the collection portfolio incentives is that right.
Karan Danthi — Jetha Global — Analyst
Yes.
Bhavesh Gupta — Chief Executive Officer – Lending Business
Yeah. So the way we see this piece it is that, the way it works is that the lenders expect the portfolio to perform in a particular manner and based on their own accounting guidelines of expected credit loss, they are provisioning that this book is going to, let’s say, as an example, going to give them a loss of 5% or 6%.
And in our estimates, when we are doing and helping them to collect, as an outsource partner, we are already seeing on a static pool basis, the book that we originated let’s say 12 months back because our average tenure, as you see for merchant loans and personal loans, which had a very large chunk of deferral incentives built into the entire economics. We are seeing already that, that amount is ranging between 1% to 1.5% of the loans that we disbursed. So we do believe that this number, as we keep growing should continue to be accretive to our business. When it become very, very large? The answer is no. Our model of lending is not build on deferral incentives. Our model of lending is build on upfront distribution servicing revenue.
If we are able to make a deferral incentive of 1%, 1.5% that’s an upside that we don’t plan for, but we hope we can get it upside to have any kind of downside, if at all in the future today which can I get [Phonetic]. But so far, we’ve seen that number in that range bound, and we do believe that number should continue in the range bound on large support [Phonetic].
To your other question on collections. So we have our own collections infrastructure, which is a company called Creditmate, is a 100% subsidiary of Paytm. Now, we do three parts of collections. We do pre-EMI delinquency management, which is using the entire Paytm app infrastructure to reach out to consumers and merchants far more effectively, smartly to make them and nudge them to make a payment in time. That’s the reason if you could see that our bounce rates that our lenders observe on the portfolio originated on customers continued to be in the range, where the prime borrowers behave.
B) we have again the second part, which is the digital engagement model, which has zero cost to us because all led by technology, both in terms of digital engagement on the app and bot engagement that which is done through either the app or through our progressive and predictive dialing infrastructure that we have. A very, very small percentage of our consumers and merchants have a physical lack of collection for which we have more than 100 people on roles of Paytm, which number hasn’t been growing. So that number, let’s say two quarters back would have grown by about 25 people, so we don’t see that cost materially change.
In totality, collection cost is very, very low. I can’t quote a number because that’s a commercial conversation, but we do price our business in that manner, but it’s significantly low than what generally the lender will expect in the market from traditional collection companies. So that number is not going to materially alter our conversations in the future.
Karan Danthi — Jetha Global — Analyst
Got it. Thank you. Just one follow-up to the first question, which is can you then monetize portfolio upside by increasing take rates for your lending partners if that portfolio continues to perform. And is that an annual conversation?
Bhavesh Gupta — Chief Executive Officer – Lending Business
You’re bang on. It is actually not an annual. It’s a six month big conversation. And we do engage at all levels to make sure that our consumers and merchants getting the best pricing because typically lenders tend to be risk pricing it bit on the north side. So our intention is that consumer and merchant should get the right price. And obviously in that bargain, we also renegotiate take rates for ourselves, and that could reflect into our books and P&L hopefully from quarter three, quarter four onwards, as the portfolio matures for most of our lenders. The answer to that question is, yes.
Karan Danthi — Jetha Global — Analyst
Thank you.
Operator
Thank you, Karan. Next question is from Mr. Nilang Mehta from HSBC Asset Management.
Nilang Mehta — HSBC Asset Management — Analyst
Yeah. Thanks for taking my question. My question is regarding merchant loans, just wanted to get a sense that what percentage of these are digitally sourced or do you have a physical sourcing from merchant loans as well.
Madhur Deora — President & Group Chief Financial Officer
No. So Nilang, we have zero physical engagement for any of our loans. We have zero call center for any of our loans. Only for merchant loans in particular, where we have an offline payments team, who engages the merchant, supervises that workforce. If the merchant needs any assistance in navigating through own Internet, they do seek the help of the field sales executive or the account manager, whom will be mapped to that merchant to help them navigate the loan on the app of the merchants, but there is no field force that we have or call center we have for any of our businesses.
Nilang Mehta — HSBC Asset Management — Analyst
Okay. And the kind of credit limits you give to merchants is function of velocity of transactions, which you see through the payment device?
Madhur Deora — President & Group Chief Financial Officer
Yes. It is a combination of velocity that we see. So it has four elements at a high level. The kind of consumers who come and make a payment to the merchant, the consistency of those consumers coming and making a payment to the merchant, the kind of instruments that customers are using to make a payment to the merchant, so this is — one vector.
The second vector that we have it is looking at the kind of the value of payments and the number of payments the merchant is getting, and obviously the frequency of the payments, is it everyday, every second day, third day, fourth day. Based on these two information, plus a lot more intelligence that we have about the merchant, be that merchant is allocated a limit, which is eventually approved or declined by the lending partners and that’s really [Indecipherable], a merchant could take anywhere if as low as INR25,000 and as high as INR500,000.
Nilang Mehta — HSBC Asset Management — Analyst
Thanks. And just one last question, if I may. Regarding your merchant base, if you could give some color on what is the concentration of transactions? And what is the retention rate of the transactions you applied every quarter. So although the 2.9 million like, what is the dropout rates, if you could give some color on that.
Madhur Deora — President & Group Chief Financial Officer
See it depends upon the kind of merchant that you’re because there is at the bottom of the pyramid, we have the QR merchant, wherein we do find that the activation, if you look at an m6 [Phonetic] activation that will be somewhere in the range of 30% to 50% because these are merchants, who have zero inertia and changing the QR code, but they don’t pay anything for it. The moment you come to devices merchant, which is what we index our entire focus on because QR code is to bring the guy into digital ecosystem, upgrade them to an IoT product, which is a Soundbox or ADC, there we see the m6 activation and retention of more than 85% of both the merchant Soundbox, actually we see much higher. But on the ADC devices, we see it more than 85%.
Nilang Mehta — HSBC Asset Management — Analyst
Okay. Thanks. Thanks a lot.
Operator
Thank you, Nilang. Next question is from Mr. Shubhranshu Mishra from UBS. Shubhranshu, you can unmute your line. Yeah.
Shubhranshu Mishra — UBS — Analyst
Hi, good afternoon. Thanks for this opportunity. Madhur and Vijay many congratulations on the reappointment. My first question is on the — there is a note number 8, which say that Vijay has got around 21 million ESOPs with certain milestones. So if it’s possible, if we can discuss those particular milestones here, what are they and what or to the respective timelines.
Second is, when are we likely to see a profit at the bottom line and not the EBITDA ex-ESOPs. Is it FY24, FY25 if we can discuss that. That’s the second.
The third question is on what happens if Vijay and Madhur both are out of the business for any reason. And how does this organization go forward? These are my three questions. Thanks.
Madhur Deora — President & Group Chief Financial Officer
Maybe I’ll attempt all three and Vijay and Bhavesh can add. On the first one we have said in the April letter, Shubhranshu that none of these ESOPs would vest to Vijay until the stock price goes above the IPO market cap. So that’s the guidance we have given. So there is a tranche at that level and then there are tranches at higher levels. So that is the — basically that is the crux of the milestone.
On your — sorry, can you just repeat your second question, I didn’t —
Shubhranshu Mishra — UBS — Analyst
When do we’ll see a profit and which year — the absolute borrowing [Phonetic], yeah.
Madhur Deora — President & Group Chief Financial Officer
Sorry. I got that. Yeah. So our view on how our financial performance should be measured is that we should look at EBITDA before ESOP cost because that is the closest to cash operating EBITDA and the number of shares outstanding that investor should use is 695 [Phonetic] million. What we are seeing — some — what some analyst and investors do is they don’t take the 695 million [Phonetic], it actually become lower share count and then they start looking at EBITDA, reported EBITDA. We don’t think that’s the right way of looking at that because the ESOP charge is a non-cash charge and it is better adjusted in the share count because that is effectively the dilution that investors are taking.
Having said all of that one additional thing that I can add is that the ESOP charge will remain high for 10 quarters, so we are now in the third quarter since October 1st last year. So since October 1st, when the ESOP charge went up, it is remain — is expected to remain high for 10 quarters and then start coming down after that. That’s the way sort of ESOP accounting works.
And on the third question, I’ll let Vijay to add as well. One of the conscious things that we’re doing is making sure that there is a very, very deep management team at Paytm. We are a very ambitious Company, and we see a huge amount of opportunity in India. And below Vijay and me, Bhavesh we have really built extremely good talent at the next level and the level below that. And that is the culture — that is the culture of empowerment is trying to build the best talent that we can in the organization, who also believe in the mission that we do.
Shubhranshu Mishra — UBS — Analyst
Many thanks. Best of luck.
Madhur Deora — President & Group Chief Financial Officer
Thanks, Shubhranshu.
Operator
Thank you, Shubhranshu. Next question from Mr. Kunal Shah from ICICI. Kunal, you can unmute.
Kunal Shah — ICICI — Analyst
[Technical Issues]
Operator
I apologize, it’s not working. Maybe we can go to the next person and come back to Kunal. Sure.
Kunal Shah — ICICI — Analyst
But I’ll take it offline. Yeah.
Operator
Sorry about that. Just a reminder of the time check, we have about time for three or four more questions the remaining time. With that, we’ll go back in the queue to Mr. Saurabh Kumar from JPM. Saurabh, you can unmute your line.
Saurabh Kumar — JPM — Analyst
Hello. Hi. Yeah. Just one follow-up. On the cost wise, is it possible to quantify the rental contribution and what will be the activation rate post six months currently for your Soundbox to assistance.
Madhur Deora — President & Group Chief Financial Officer
Yeah. So Saurabh, I just repeat the answer I just gave earlier. So we are seeing m6 activation of more than 85% for our Soundbox devices, shared [Phonetic] more than that ADC is ranging between 80% to 85% on activation m6.
Saurabh Kumar — JPM — Analyst
Okay. So basically the 150 [Phonetic] into this 85% should basically get us to the rental number.
Madhur Deora — President & Group Chief Financial Officer
Mathematically, but it’s not to say that the remaining people, who are inactive, they remain inactive and they pay rent. This I’m talking about transaction active, rent activation typically ends up being a bit more.
Saurabh Kumar — JPM — Analyst
Okay. Got it.
Madhur Deora — President & Group Chief Financial Officer
And rent, rent is itself a function of not just rent, but also cloud subscription fees that they would be paying. We keep doing cross sell and upsell, so.
Saurabh Kumar — JPM — Analyst
Yes. That part is very clear. Okay. Thanks a lot. Thank you.
Madhur Deora — President & Group Chief Financial Officer
Thanks, Saurabh.
Operator
Thanks, Saurabh. Next question from Mr. Nilang Mehta from HSBC. Nilang, you can unmute your line.
Nilang Mehta — HSBC Asset Management — Analyst
[Technical Issues]
Operator
I’m sorry. Your line is not very good.
Madhur Deora — President & Group Chief Financial Officer
Nilang said the growth were [Indecipherable] so. Maybe go to the next question. I think we can try to come back to Nilang [Phonetic].
Operator
Next question we’ll take is, the repeat question from Mr. Karan Danthi from Jetha. Karan, you can unmute.
Karan Danthi — Jetha Global — Analyst
Yeah. Sorry, I don’t have any more questions. My questions were answered sufficiently. Thank you.
Madhur Deora — President & Group Chief Financial Officer
Thanks, Karan.
Karan Danthi — Jetha Global — Analyst
Sure. Thanks.
Operator
Next we will take Sumeet Kariwala from Morgan Stanley. Sumeet, your line is unmuted.
Sumeet Kariwala — Morgan Stanley — Analyst
Yeah. Hi, good afternoon, everyone. I had a quick question on wallets getting interoperable, is there any discussion on the interchange MDR. It was supposed to be in operational from April, so just trying to get an update on that, please. Thank you.
Madhur Deora — President & Group Chief Financial Officer
So Sumeet, this is, you’re right. This was supposed to get operational from 1st of April. I think there is some delay in — at the network to get alignment on tech specs, etc. So we do believe that it should get operationalized soon and be pursuing the network and other participants to make it operational. The commercial alignment broadly has been achieved, but the operational alignment is something some a lot — some more work needs to be done. So we are hopeful and maybe in the next couple of months, it should be operational.
Sumeet Kariwala — Morgan Stanley — Analyst
And Bhavesh, is this the right time to get some details on the commercial alignment in the sense interchange or you’re saying [Speech Overlap] done.
Bhavesh Gupta — Chief Executive Officer – Lending Business
No. Obviously, it’s yet not in public domain, but it is in line with our expectations that we wanted it to be. I can say only that much.
Sumeet Kariwala — Morgan Stanley — Analyst
Got it. And Bhavesh, just one more question very quick. Would you be able to share as to how many loans or individuals in the Paytm Postpaid and personal loans would be related to fintechs or start-ups and so on, like what percentage of loans or individuals would be from fintech or startup sectors, gig economy etc.
Madhur Deora — President & Group Chief Financial Officer
Sumeet, I’m sorry, we don’t track it and that —
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
No, no, we don’t do anything to the gig economy.
Madhur Deora — President & Group Chief Financial Officer
Yeah.
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
We have absolutely no connection whatsoever with any merchant partners sub gig economy people. So we don’t give loan to any rider etc that we would have partnered let’s say with some food delivery service perhaps on local delivery services. These are the customers, who are active long term usage of Paytm app when it comes to consumers and our usage of Paytm merchant. We don’t rely on somebody else’s data or access to the customer. So Sumeet, this is not even applicable for us.
Madhur Deora — President & Group Chief Financial Officer
And Sumeet, it will be an easy question to answer, if we were using channel partners or doing any sort of other fintech or foodtech or other partnerships, we don’t do that. And hence, if somebody is a gig worker that is not a data point that we track. What we track is their engagement on Paytm platform.
Sumeet Kariwala — Morgan Stanley — Analyst
No. I’m just thinking that some of the users could be using Paytm quite often, and therefore in that perspective [Speech Overlap].
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
Actually, no, because of these people, as you heard from Bhavesh that these are high CIBIL score customers, and this is convenience centric loan and it is not led by these kind of factors that you’re noticing. And actually as a Paytem user, you’re welcome to be a user or welcome to be a, let’s say, somebody else, but we don’t judge on that either. That said, it’s significant number of other usage variable, if you will. Sumeet, it’s led by usage variable [Phonetic] there.
Sumeet Kariwala — Morgan Stanley — Analyst
Thank you. Thank you. Thank you, Vijay.
Operator
Thank you, Sumeet. Next question we’ll take us from Mr. Sachin Salgaonkar from Bank of America. Sachin, your line is unmuted.
Sachin Salgaonkar — Bank of America — Analyst
Hi, thank you. Sir, just one last follow-up question from my side, given your stock price, where it is, and given the cash on your balance sheet and your timeline or in terms of being close to EBITDA [Phonetic] given by September ’23. Any thought process for management and Board to contemplate on looking at something like a buyback or anything to help, we saw some of the US companies doing that.
Bhavesh Gupta — Chief Executive Officer – Lending Business
[Indecipherable] or not, at least, I’m going to buy that I publicly made an announcement also some point of time not because that I think it is plan of a buyback, but this plan off that I believe that it’s a great value of the even embedded [Phonetic]. Madhur, you can talk about the rest.
Madhur Deora — President & Group Chief Financial Officer
Yeah. So Sachin, it had come up in a couple of conversations from with investors and so on, and we have decided that for the first six months absolutely not. We’re not going to discuss it nor discuss it with the Board and so on. We may, as we move forward evaluate the environment and let the Board take a decision on that. But for the first six months, we were head down focused on making sure that we meet investor expectations with respect to revenue, contribution margin profitability.
You’re right. With the observation, which is given our September 2023 timeline, at the time, we hit operating EBITDA breakeven, we would have substantial amount of cash in our about sheet, a very large percentage of the IPO cash. So we do have some options, but we can — we will at the appropriate time discuss that with the Board.
Sachin Salgaonkar — Bank of America — Analyst
Now did the first six months are largely done right?
Madhur Deora — President & Group Chief Financial Officer
Exactly. So the first six months are just done like three days ago. And we will over the next few months go to the Board with various options and make a decision based on all factors.
Sachin Salgaonkar — Bank of America — Analyst
Okay. So there is a possibility in the next six months depending upon how you guys and the Board thinks, we might see something.
Madhur Deora — President & Group Chief Financial Officer
Yeah. It would depend on a number of factors and the Board would have to take the final decision. But I don’t have anything to sort of announce or guide towards right now.
Sachin Salgaonkar — Bank of America — Analyst
Okay. Thank you and all the best.
Madhur Deora — President & Group Chief Financial Officer
Thank you.
Operator
Thank you, Sachin. And now for the last question of the session, Mr. Rahul Jain from Dolat Capital. Rahul, you can unmute your line. Yeah.
Rahul Jain — Dolat Capital — Analyst
Yeah. Yeah. Hi, thanks for the opportunity and congrats on strong numbers. Just one question, of course, it may sound bit repetitive. On the payment processing charges, you know, we’ve been mentioning some of the reason why it’s been kind of coming off because of transaction routing, efficiency and scale up. But is there a flow that we cannot kind of reach, I know, there is payment held load of other revenue stream, so we cannot directly correlate. But is there kind of a flow that we can define based on the kind of mix we have right now.
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
You mean take rate flow meaning, a particular take rate.
Madhur Deora — President & Group Chief Financial Officer
So I think the question was payment processing charges, as a percentage of let’s say GMV or as a percentage of revenue in terms of [Speech Overlap].
Bhavesh Gupta — Chief Executive Officer – Lending Business
[Speech Overlap] payment revenues or something [Phonetic]. So Rahul, what I’d say is that it is possible thing and we see lots and lots of opportunities with respect to — and this is on the cost side, one of our key focus areas is obviously our largest cost at roughly 50% of our total revenue. So you can imagine, this gets a huge amount of attention internally. And there are lots of opportunities here. And every time, we sort of execute against a few opportunities, more opportunities open up. It’s hard do right now say where this would land year or two years from now as a percentage of GMV, but we definitely both as a percentage of GMV and as a percentage of revenues, we continue to see opportunities here.
Rahul Jain — Dolat Capital — Analyst
So is it ideal way to look at this charges related to payment revenues or it will be more relevant for the entire GMV as a percentage.
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
[Speech Overlap] Rahul, I would say that you should take it as a payment revenue about GMV is mix of various factors including zero MDR, UPI, but then government incentive comes and then there is subscription revenues or different services that we are giving, and then there are different take rate basis products like debit card of a particular network are zero, but other networks are large. Credit card, it’s — so it’s simple payment revenue.
Should be bother about GMV, as a number? In my opinion, it’s the best way to look at payment revenue is that how your customer base, merchant base is growing and how your payment revenue is growing and what payment growth will be. If you will start to look at as a percentage of GMV, it starts to add this variable that particular payment instrument growth is shadowing other payment instruments growth, and then there is a growth from other payment instrument. So I would rather keep it as a payment revenue instead of revenue divided by GMV.
Rahul Jain — Dolat Capital — Analyst
Right. Right. And maybe a slightly forward looking, but if you could give any idea like given the run rate that we have right now probably for the next INR1,000 crore incremental revenue, we may have this extra INR400 crore [Phonetic] kind of a crore of extra profits, which means that at INr2,500 crores give or take kind of a quarterly run rate, we will have this adjusted EBITDA breakeven. So what could be the journey beyond that? Will that mean that it would be a significant profit pool beyond that because our business does not have a lot of marginal cost attached to a transaction or will we — be more spending on that objective of reaching this 500 million consumer from an activation point of view versus we are today at much lower number than that. So there at that point, the cost could be a very different nature given the goal push, we maybe chasing then.
Madhur Deora — President & Group Chief Financial Officer
Rahul, very, very good question, and especially, this is the kind of conversation I do with my team, and I want to share the excitement and the thrill is that we not only will be profitable, it will be significantly free cash generating profitable subsequently. We don’t have a desperate ambition of in shorter term getting 500 million people on our active number level. We would remain moderate about it. We already have signed up, if you noticed as a signed up user and then people, who created an account, people who were once active, we just went through all these kind of different matrices and we found out at the time of IPO that the best thing is monthly active.
So the number that you’re seeing is monthly active. Surprisingly if I was to quote 500 million customers, we already would have signed up them as a customer already before even IPO process. What we say when we bring mainstream of economy, we try saying that having a bank account, credit opportunity, wealth and insurance that any partner is like to distribute and give them access. So there is a significant dependency of a partners’ plan to distribute based on technology and access that we provided. It’s an important thing Rahul, as you said that it is to be understood that we will be as effective as our technology will allow our partners to reach out to the customer base, understand the customer base and offer one or two of those financial services.
Our business remains payments, which is a spread and then, our business remains bet on credit, and then subsequent two years, three years forward, we look at other financial services. So payment and credit like you said, not only will be profitable at the EBITDA level, let’s say, the sequencing that we look at it is, would be EBITDA before ESOP, overall EBITDA, bad free cash, and then sizable free cash. That’s the journey Rahul that we are looking at. We are clear about it. So the Company’s moat should be free cash it generates and the impact that it creates for the free cash it generates.
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
Rahul, maybe I’ll just add one more thing, which is that at the time we hit breakeven, I do expect that both like in areas like lending, commerce and cloud and so on, we would have still barely scratched the surface, and these are large profit pools, large opportunities and very profitable for us.
Rahul Jain — Dolat Capital — Analyst
Right. And lastly, if I can squeeze in one. You said something about the organic insurance business thing, if you could elaborate little more than on what you’ve said there.
Madhur Deora — President & Group Chief Financial Officer
Yeah. So we reevaluated our insurance plans, and we think at this point, it makes more sense for us to apply for an organic venture. We would have 74% stake upfront. 26% as you know in India has to be owned by an Indian person. The venture basis our business plan requires INR950 crores of capital over 10 years. Obviously this would go through a process with IRDA of them improving the business plan and so on. And we believe that investing and creating long-term value by investing INR950 crores over the next 10 years is a very capital efficient way for us to build this business.
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
I’m going to extend Rahul, one more factor here that we look at it as three year to five year forward business for us. We don’t look at it in a short, mid run — mid term. Number one. Number two, any of these plans that we are talking and a few minutes back I was answering for any off — any other capital gain or other thing that could be added into the bottom line, we look at the operating breakeven meaning cash that we generate from the business and cash we spend in the business remains committed and aggressively convinced, further convinced that it will be achieved definitely by the time period. So this is more for planning three years, five years forward. And as you understand, these various approval and processes take time and years.
Madhur Deora — President & Group Chief Financial Officer
And Rahul, sorry, one final point, which is final point our focus does not change. Our focus is very much what Vijay described right at the beginning of the call, which is payments and credit.
Rahul Jain — Dolat Capital — Analyst
Right. And just one bit more clarification since we would be investing this money, of course, big part of it will be capitalized, but whatever opex, we would be generating over let’s say next six quarter, seven quarter, will that have any bearing on the guidance that we’ve given on the EBITDA side or this is outside of that.
Madhur Deora — President & Group Chief Financial Officer
That’s what Vijay, I think was saying. Obviously, if we have 74% of this entity, this would be consolidated. And Paytm at a consolidated basis, of course, is — will the plan to hit EBITDA breakeven in six quarters absolutely, it does not change.
Rahul Jain — Dolat Capital — Analyst
Okay. I appreciate it. Thank you. That’s it from my side.
Operator
Thank you, Rahul. With that, we come to an end to this earnings call. The presentation discussed by the management today, a recording of this call and the transcript will be available on our website shortly. Thank you all for joining.
Vijay Shekhar Sharma — Chairman, Managing Director and Chief Executive Officer
And thank you everyone for joining. It was really good interacting with you. I see some hands up here. I want to request them to send an email to ir@paytm.com, and we will literally take every question, as an opportunity to get back to you, and thank you for your support and interest in our business. It is humbling, and thank you, from everyone from Paytm side. Thank you so much. Have a good day.
Madhur Deora — President & Group Chief Financial Officer
Thank you, everyone.
Bhavesh Gupta — Chief Executive Officer – Lending Business
Thank you.
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