One97 communication Ltd Q4 FY22 Earnings Conference Call Insights

Key highlights from One97 communication Ltd (PAYTM) Q4 FY22 Earnings Concall

Management Update:

• PAYTM said that in payments, which is the company’s primary bet, it will be able to earn all its cost and achieve EBITDA contribution standalone for payment also.

• PAYTM said it will be delivering operating profitability (EBITDA before ESOPS and costs) by Sept. 2023 quarter.

• PAYTM expects it marketing costs to remain high in 1Q23.

• PAYTM’s Employee cost were up 64% YonY in 4Q22 and 51% YonY in FY22 due to significant investments in FY22 in the sales team for merchant acquisition and in technology teams. The company doesn’t expect its headcount to grow up going forward.

Q&A Highlights:

• Sachin Salgaonkar of Bank of America asked about how much more room is there in terms of optimization of payment processing charges going forward. Madhur Deora CFO said that the company expects this as a percentage of revenue and as a percentage of GMV to continue to improve due to transaction rates getting better and transaction mix continues to improve in PAYTM favor.

• Sachin Salgaonkar of Bank of America asked about the impact of ban on payments bank for acquiring new customers by RBI. Bhavesh Gupta CEO Lending Business said the process the regulator has laid out for the bank is working in a time bound manner and in 3-5 months the process hopefully should get over. Also, there is no impact on existing customers. Only new wallets and new CASA accounts is not allowed currently, for which the impact is marginal.

• Bhavik Dave at Nippon India enquired about the kind of govt. reimbursements it would have got. Madhur Deora CFO said the reimbursement was received in FY22 for each of the quarters. A small amount came in 4Q22, but the number cannot be disclosed but it was immaterial to the revenue trend.

• Saurabh Kumar of JPMorgan asked about indirect expenses and guidance of employee cost not going up materially, for FY23 if the number will be similar to 4Q22 annualized. Madhur Deora CFO said the guidance was for employee headcount but there might be some uptake on employee cost in terms of increments etc. On indirect expense growth, PAYTM expects it to moderate across the board.

• Piran Engineer of CLSA asked about the revenue from services to merchants, what’s the mix of subscription and payments related revenues. Madhur Deora CFO replied that PAYTM charges INR125 for its Soundbox and it goes up for various types of devices. On avg. it’s about INR150-175 a device, depending on the mix, perhaps INR200 a device.

• Piran Engineer of CLSA also asked since total GMV is slightly up 3-4%, if it means bill payments by consumers on the app is up meaningfully QoQ. Madhur Deora CFO answered that PAYTM’s consumer engagement, essentially bill payments, on its app transactions GMV revenue did see a very sizable improvement in 4Q22.

• Nilang Mehta from HSBC asked about merchant loans, what percentage of these are digitally sourced or if there are physical sourcing for merchant loans. Vijay Sharma MD & CEO answered that the company has zero physical engagement for any of its loans.

• Sumeet Kariwala of Morgan Stanley asked about wallets getting interoperable, if there is any decision on the interchange MDR. Vijay Sharma MD said that it was supposed to be operational from April 1. There is some delay in network to get alignment on tech specs etc. PAYTM expects this to be operational soon. The commercial alignment broadly has been achieved.