One97 communication Ltd Q3 FY23 Earnings Conference Call Insights

Key highlights from One97 communication Ltd (PAYTM) Q3 FY23 Earnings Concall

Q&A Highlights:

• [00:24:47] Manish Adukia with Goldman Sachs enquired if it is safe to assume that PAYTM will reach FCF profitability starting 4Q23, and are double-digit EBITDA margins possible by FY24 end. Madhur Deora CFO said that Q4 UPI incentive will be a one-off and not free cash flow generative. However, PAYTM is aiming for sustained EBITDA growth, which may lead to two-digit figures in the near future.

• [00:27:39] Manish Adukia of Goldman Sachs asked about an estimate of how long it will take for the Paytm Payments Bank to be fully regulated. Vijay Shekhar CEO said it’s a RBI decision and based on the interaction the day is not very far.

• [00:29:20] Sachin Salgaonkar from Bank of America queried if PAYTM will provide guidance for net income and FCF breakeven in addition to the adjusted EBITDA breakeven that’s already achieved. Vijay Shekhar CEO answered that PAYTM is making sure to have sustained and growing profitability and won’t be compromising on investments in growth and marketing. PAYTM expects its profitability to continue to grow along with these investments.

• [00:33:58] Saurabh Kumar of JPMorgan asked about the reconciliation of INR9,200 crores cash balance to INR9,000 crores in Dec.; capex and buyback split.  Vijay Shekhar CEO replied that in 3Q, PAYTM had INR200 crores of capex and INR100 crores of interest income. As of Friday, PAYTM completed INR796 crores of buyback.

• [00:36:41] Saurabh Kumar of JPMorgan enquired about indirect cost not growing for three quarters now and any outlook. Vijay Shekhar CEO answered that the company has kept its indirect expenses flat for the last three quarters due to its strong monetization engine. However, if there are areas where slightly incremental expenses could be made, such as in sales and marketing, PAYTM would do that.

• [00:39:27] Rahul Jain at Dolat Capital asked about the reasoning behind the low promotional cashback of INR78 crore, when the number of MTUs has increased on a QoQ and YoY basis. Vijay Shekhar CEO said the MTU additions are driven by product and technology initiatives, such as referral marketing, rather than cashback. PAYTM said it will invest in consumer growth when it has opportunities for profitable returns and currently it is mainly product-driven.

• [00:46:30] Sameer Bhise from JM Financial asked about the contribution profit of 50% plus, if it will be the new normal. Vijay Shekhar CEO replied that there are no one-offs in the current margin number. This is a rebased margin number that PAYTM expect to be steady or growing on a long-term basis.

• [00:47:27] Sameer Bhise from JM Financial asked about the number of employees and how much more to go in terms of on-ground sales force additions. Bhavesh Gupta CEO Lending said that PAYTM added a lot of people  quarters ago, and while it believes it will add more in the future, it won’t be as much as last time. It will be a positive addition that will increase the device sales.

• [00:50:00] Sameer Bhise from JM Financial asked that the payment services to merchant is clocking 9% YoY and if it will increase going forward. Madhur Deora CFO answered that two things have happened. First, PAYTM has done a lot of cleanup over the last two quarters to block out certain GMV and gross revenues of merchants that were not profitable or too risky. Second, PAYTM has improved its ability to identify bad merchants more accurately.

• [00:52:54] Gaurav Kochar of Mirae Asset asked what is the total user base of BNPL product, such as postpaid and PL, as a percentage of PL disbursed in the last 12 months. Madhur Deora CFO said 8.1 million users have taken some form of credit, with 7 million of those are BNPL credit customers. This number is growing by 400,000 new users each month.

• [00:53:16] Gaurav Kochar of Mirae Asset also asked about the repeat rate in the case of PL and penetration of PL as a percentage of the BNPL going forward. Madhur Deora CFO replied exact number is not available, but it is estimated to be around 300,000 to 400,000 out of the 7 million BNPL users. Every month, about 30,000-40,000 users are taking out PL from the BNPL pool, indicating that there is still a large opportunity for personal loan penetration.

• [00:58:46] Gaurav Kochar of Mirae Asset enquired about the device run rate and if it will improve with headcount increase. Madhur Deora CFO replied that it will improve as the metric of Jan. over Dec. is improving.

• [00:59:55] Manish Shukla of Axis Capital asked about sales force split of 29,000, how many will be off roll. Vijay Shekhar CEO said PAYTM does not have off roll as a concept in sales force. So the team is on the rolls of subsidiary or directly.