CEOInterviews.AIPaytm Q4 FY2026 Earnings Call | First Full Year of Profit | By Paytm

V

Vijay Sharma0:00

So in addition to what Vij said about marketing services and sort of crux to your question, yes, we expect that to be a contributor going forward. It has been a bit of a drag last year, but we think the growth will be across the board. And on EBITDA, we will maintain about two and a half to three years from now that we should be able to get to those sorts of options.

M

Manish0:21

Very clear. Thank you, Madhur. Maybe second question on financials, which you touched upon in the earlier question. And I know you stopped giving out disbursement numbers, but from the postpaid launch that you made earlier, if you can just talk about the traction this time versus the earlier postpaid. Is the traction in terms of ramp-up of the product scale or disbursement tracking better or similar versus the last iteration? Any differences in consumer traction, that'll be great.

V

Vijay Sharma0:53

Yeah, Manish, better than last time. Classic internet dissemination or diffusion of services style. It took X number of time, this is taking X by a significant large number time. So it's, I mean, I'm really happy. We would not give this much. I think this mis-pushes us towards as if that we are a credit issuing entity, which we are not. So we are a pure technology platform which helps different people to distributors. This is the nearest, most agent product to our payment, and I think it is doing phenomenally well. I'm not using to say it is doing well. I'm going to use the word phenomenally well, and I'm very happy about it. That on the back of it, our personal loan disbursements in last month, I mean, this will show up in the next quarter, have started showing up. I mean, we have started to go back to, if you read a particular text of personal loan disbursement, it is not that we are anymore measured about or limited about. It is rather going next level.

M

Madhur Deora1:51

And just to remind everyone, this is a classic compounding business because our sign-ups are very strong and repeat rates are very strong. So it just sort of compounds upwards as you sort of just go through time. So we're seeing that sort of compounding traction, and it is significantly faster, as you can imagine, from the first time we started the postpaid journey.

M

Manish2:15

Sure. Just a quick clarification on that one, and I know you don't give disbursements, but I recall last time when you used to give disbursements, the peak of the disbursement for postpaid was about 9,000 crores a quarter. And given that you're saying that the ramp-up is actually faster, no reason why you should not get to that number at some point in time in the foreseeable future. I mean, would that be a fair statement?

V

Vijay Sharma2:36

No comments towards any guidance or hint of it.

M

Manish2:38

All right, great. I tried. Maybe just last question before I just jump back in the queue. PPBL ban, I know it's an associate for you. You don't have any management control there. But in terms of just any early impact on your listed entity One97, just because you share a common brand in terms of consumer merchant acquisition or churn, and what does that mean now from your own wallet or prepaid instrument application to the RBI and the outlook for that? That's my last question, thank you.

V

Vijay Sharma3:08

I think no impacts. We did it in press earnings release on the system, and we remain committed.

M

Manish3:15

Sure, and wallet license?

V

Vijay Sharma3:18

We remain committed.

M

Manish3:20

Okay, sure. Thank you, Vijay, Madhur. All the best and thanks for taking my questions.

A

Anand3:25

Thanks, Manish. The next question we'll take from Mr. Sachin Salunkhe from BofA, followed by Pranav Chhatria from MK. Sachin, you may please go ahead.

S

Sachin Salunkhe3:36

Thanks, Anand. Good morning, management. First question, generally a follow-up. You know, when we look about growth accelerating in FY27, there are multiple other small businesses which are yet to scale up: wealth management, brokerage, insurance. Even on the personal loan basis, any color in terms of, you know, should we see a good amount of acceleration coming from these businesses scaling up, or it's the existing merchant loan business, soundbox, as well as the core payments business which will help accelerate the growth? In a very simplistic manner, should the core business show acceleration of growth, or should we see a combination of both, actually?

V

Vijay Sharma4:19

So first of all, the business model is straight and simple: that we acquire customers using payments and we cross-sell financial services. We've done good in credit. We definitely are right now focused on wealth, or wealth and securities brokerage, whatever the line item that we want to call combined into one wealth item. It is critical for us to make it a third leg of growth. It may not, and I've said it in last earning call, that we want to see ourselves in top five sooner than later, and that remains a focus area individually for me also. In other words, I'm saying that payment has to scale because that is the TAM. So there is no alternate to that. We will keep investing. If you notice, we have very clearly articulated the amount of investment in expansion, amount in creation. So our cost optimization is rather about creation of the product and platform of payments because the cost is much lesser in that and continue to reduce. But the attention is more about expanding that platform to a dramatic large enough optimum time, a dramatic large from today optimum, because we don't want to acquire everyone, that is the word I'm using. So it is an obligation, and right now we are so happy seeing the monetization cycles showing up that that is the primary opportunity of it. In fact, over the period, Paytm could be looked at as the payment platform that monetized in financial services.

M

Madhur Deora5:36

Sachin, the message you should take away is it is more or less across the board. Our large established businesses, we see huge opportunity ahead. We love our merchants, online and offline. Last year, online had a headwind that we did not have permission to onboard new customers for about half the year. That's lifted. We're seeing good traction there. Offline, obviously, there's huge market opportunity still ahead. I know this is a very popularly asked question, which is, hey, you have added X number of merchants, do you still see growth ahead? Absolutely, we are seeing market expansion and we're seeing market share growth. So that's going really well. So that's one bucket of large, established, overall profitable businesses. The second bucket is businesses which had scaled but had some headwinds in the last couple of years. So advertising, because of our MTU and app revamp, had a headwind. Personal loans had a headwind because of credit cycle. A lot of that is turning into tailwinds from a slightly lower base. And then the third one, like Vijay said, is where is the third pillar? And the third pillar we think is in wealth. And there, I would characterize that as a slightly different business where we are younger and have low market share but great opportunity to increase market share, and these are proven businesses. So that's why web sort of retail broking, if you will, gets filtered to the top. So those are sort of the three legs of revenue growth, and we're quite excited about each one of those three buckets.

S

Sachin Salunkhe7:07

Great. Thanks for the detailed answer. My next question is a statement you mentioned in your shareholders' letter that you're looking to keep some dry powder for selective inorganic action. Now, on a really big picture basis, how could we think about this? Any specific areas in the current business you are looking to focus? Is it more on international alliance, or is it any kind of a new opportunity which is going to open, given the fact that AI could open up doors for new businesses as well?

V

Vijay Sharma7:37

Yeah, any new investment only in AI.

S

Sachin Salunkhe7:45

Any new investment only in AI?

V

Vijay Sharma7:48

Oh, in only in AI, okay.

S

Sachin Salunkhe7:50

And you know, I mean, Vijay, when we talk about AI, is it something which is going to help the existing businesses, or it could be a completely new line of business, actually?

V

Vijay Sharma7:58

No, it's primarily the same customer, same merchant, primarily making their life better. Like I told Manish's question, that we believe there will be significant amount of opportunity for us to create agents and so on.

S

Sachin Salunkhe8:11

Got it. And last, just a bit of a follow-up on this RBI thing. What kind of further permissions, licenses are we expecting from RBI? One is wallet, which is largely known, but beyond wallet, is there anything which is pending per se from an RBI point of view where you guys have applied?

V

Vijay Sharma8:33

Nothing.

S

Sachin Salunkhe8:36

And is there any timeline when we could expect the wallet license?

V

Vijay Sharma8:41

I'd rather put down an execution journey. There is so much on the plate and table that I would say that ambiguity is behind us.

S

Sachin Salunkhe8:50

Okay, great, thanks, and all the best.

A

Anand8:53

Thanks, Sachin. We'll take the next question from Pranav Chhatria from MK, followed by Vijay Jain from Citi. Pranav, please go ahead.

P

Pranav Chhatria9:04

My first question is regarding the higher promotional and cashback incentives. So we've seen this expense going up quarter on quarter. But correspondingly, we've not really seen any jump in the marketing services. I understand this is a seasonally lean for marketing services. But there is no increase in the MTU as well. So how should we see this trending, and what is the timeline for it to give outcome?

V

Vijay Sharma9:34

I think it is the marketing services where you sort of expect, let's say, our commerce line items to do the good job, but it is also going in expansion and cleanup of our existing customers, trying towards other services beyond just marketing services. For example, like there is digital gold on our platform, there is an element of deal discount, gift vouchers. We believe that strengthening the moat of customers and locking in on our platform is a first priority, which is what the payments core job is. And we do acquire customers. I mean, you know, it's a two-choice to put that we can continue to acquire an incremental costly, incremental lower-cost customer who is not in the ecosystem, and the cost of that is that you will not have large users because the new incremental customer left in the ecosystem is a very low transacting or low-value customer, if you will. So we are trying to acquire high-quality, good-quality customers. So the increase in spend will consistently go up, but it will not go up in the ratio of what you could just recklessly spend. So we have been measured and we remain measured in spending, but at the same point of time, we are conscious about what kind of quality of customer are we getting and what purpose the customer is coming. So these things go through quarter-on-quarter measurements and recalibrations. At the same point of time, I'm committing this once again that we will continue to spend it not more than what the ratios have been right now, like we have always said it. So it is not an incremental extra spend at all. First of all, it is within the guidance we have given. At the same time, usage of this money will continue to calibrate towards which service is what we continue to do it.

M

Madhur Deora11:18

Just a couple of tactical things to just contextualize. One is you have to look at it sort of like marketing expenses and cashback together, because some of those are decisions that the teams make in terms of where they want to spend their marketing dollars. The second is, while the MTU number may not reflect all of the impact of this spend, but if you look at our engagement, that has gone up dramatically. So the market share growth that you're seeing is far exceeding, if you will, MTU growth to underline the point that which I mentioned about quality of customers and engagement of customers. And take a step back, if we were to break our business into consumer side and merchant side, we have had the best quarter from a profitability standpoint on the consumer side in the last eight quarters. So it is flowing down to the bottom line despite these additional spends.

P

Pranav Chhatria12:15

Okay. Fantastic. My second question is regarding indirect costs. So typically Q1 will have higher employee cost on account of appraisals and salary hikes. So how should it trend from here on? Should we expect that to remain in current, you know, 1150 thereabouts, or it can be significantly higher than that?

M

Madhur Deora12:42

So there are quarter-to-quarter changes, particularly including the impact of appraisals. But if we look outwards towards the next year, we do think that, like we have said, this will grow significantly lower than revenue and contribution profit growth and continued operating leverage as a result of that. And the second point I'd make is that we still see efficiencies in various parts of the organization due to use of AI.

P

Pranav Chhatria13:11

Okay. Excellent. From my side, I'll get back in queue. Thank you so much.

A

Anand13:14

Thanks. The next question is from Vijay Jain from Citi, followed by Jay Kothari from Access Capital.

V

Vijay Jain13:22

Yeah. Hi. Thank you. Can you hear me?

A

Anand13:26

Yep.

V

Vijay Jain13:27

Yeah. Hi, thank you. My first question is on net payment margins. Good to see, you know, nine basis point overall. You've said that it's remained above four basis points despite the, you know, PF subsidies and so on going away. Looking ahead, what would you call the major drivers for it continuing to go up? I know you have various streams: merchant fees, instant settlement, I don't know if you're deploying working capital towards instant settlement, and then of course you have UPI credit and EMI. So I just wanted to get your sense on all three or four different drivers where you still think there is decent upside, and how do you get those upsides? Are these going to be more push-driven or just organically will happen?

M

Madhur Deora14:37

I think there's a whole bunch of smaller factors, but the two major factors, especially when we think about payment processing margin, which is what we have said is higher than four pips, the two major factors are our product improvements giving us the luxury of having pricing discipline. So we have talked about pricing discipline in the presentation, but the underlying piece is that our product keeps getting better and better, and as a result, merchants in this case are seeing more value in our product. And the second is just a shift in the industry, which is credit instruments being on UPI rails and growing at much faster pace than overall UPI. So we've talked about credit card on UPI before. Obviously, Paytm Postpaid is starting to be a contributor as well. Still relatively smaller compared to a couple of years ago, but becoming a contributor as well. And if you can have a small, even a small percentage of your giving you 20, 30, 40 pips of margin, then obviously it does change the overall mix significantly.

V

Vijay Jain15:47

Got it. So Madhur, safe to say there are plenty of upside drivers to those core net payment margins right from what is right now greater than four business. Got it. Thank you.

And then specifically on some of these, you know, a lot of your merchants are obviously in the long-tail, mid-market side of things. And I would imagine things like settling their balances faster and so on and so forth is a potentially more useful thing to those kinds of merchants and to larger merchants. Is that a product that has a lot of success and adoption from merchants? Just want to get a sense of whether you see more revenues where you could deploy your capital, it gets you some fees, and is useful to your merchants as well.

V

Vijay Sharma16:41

Yeah, we do settlement as a product. It's a good product, it's an industry product, we do it.

V

Vijay Jain16:48

Got it. The next question I had was on Paytm Money. So in general, are there any product investments that you still need to do within Paytm Money to kind of make the proposition more compelling to heavy users, traders, versus say investors? I'm just trying to get a sense of whether there are gaps there.

V

Vijay Sharma17:08

Short answer, dramatic more. I mean, obviously the AI is changing everything, my friend. I mean, the agents will show up that will do trading, agents will take care of your portfolio readjustment, agents will show up, the trading strategy of yours will be reviewed, agent will create option chain for you, agent will create scalper. I mean, I would rather say I feel lucky that we did not dump a lot of money earlier because in the AI world everything resets. So we see it as an opportunity of bringing some product that is materially different from now to 2030. I mean, the point is what got created in 2020 is not going to work in 2030s, that I can write it. So anybody who's not investing is an opportunity for us, that person's customers.

V

Vijay Jain17:56

Got it. And Vijay, so just sticking to that point a little bit more. So what you're talking about is consumer-facing experience of how you trade. Is there anything on the back end also that you need to invest in to be able to serve?

V

Vijay Sharma18:11

Consumer-facing is going to get easier because you will not tap tap tap tap tap tap. So everything is a backend investment. I mean, everything is a core investment machine. Anything that shows up in the front, it is only as good as it is in the back.

V

Vijay Jain18:28

Understood. My last question, any comments on how Paytm Check-in has done since you've launched it? I think it's been a few quarters.

V

Vijay Sharma18:37

This is so-so. Which is, this is our dip test that how Indian consumers are okay for an interface that is chat interface, agent interface, completely agentic. So it's our perfect experiment to look at it, and we picked up a different brand name so that people don't perceive that okay this has got popped out or something. It is completely agentic approach towards conversational interfaces. I see agentic interface as rejuvenated new opportunity for Paytm to gain consumer shares in dramatic number of categories. And this is our experiment category.

V

Vijay Jain19:13

Okay. Good to hear. Thank you.

V

Vijay Sharma19:17

I mean, one side note. You will be shocked, the funnel conversion on agentic when a customer starts, it typically is two or three percent in a funnel that starts where the commitment is the customer can be browsing, but funnel converts, meaning 100 people if they're searching, it goes to 3% in a good scenario, good product company would do that. I mean, it's seven or eight times more than that, my friends, seven or eight times more. It is 700% better funnel because of agentic. I mean, boom.

M

Madhur Deora19:50

So people go closer to transaction, complete more, seven times more people complete the funnel in agentic workflow than a tap workflow.

V

Vijay Jain20:00

Oh, okay, good to hear. Yeah, thank you so much. Best of luck for FY27.

V

Vijay Sharma20:06

Thank you. Thank you.

A

Anand20:07

Thank you. We'll take the next question from Jay from Access Capital, followed by Koshik Agarwal.

J

Jay Kothari20:35

Am I audible? Hello.

A

Anand20:37

Yeah, yeah, you are.

J

Jay Kothari20:38

I don't know how I got promoted to panelist. Anyway, congratulations for great performance on financial services, guys. First question was on the payments piece. I see you have done a very strong growth over there. If I see this quarter versus last year fourth quarter, both your GMV is up 27% and the margins are moving from more than three to more than four basis points. That actually throws up a very high growth number on the payment processing margins. It's more like 50-60%. Is this a real number or are we missing something? I mean, that is quite high growth in process.

M

Madhur Deora21:17

So just to be clear, our guidance earlier was greater than three, which is not to say that we were exactly at three, but the math that you're doing, while adjusted for that number, is correct, that our payment processing margin has been very strong.

J

Jay Kothari21:30

Great. Now unfortunately what that implies is the subscription revenue has not grown at all, and this is despite us adding 27 lakh devices, which is 22% on our base. Is that because a lot of these would have gone for PF link devices? And then of course, how do we think about this without any price hike? It means the device addition is not fully translating to revenue growth.

M

Madhur Deora21:56

Yeah, so it is the case that PF has an impact. And it is also the case that adjusted for, even sorry, without adjusting for that, the device subscription per device overall is slightly lower. But we do see this as a very good funnel to merchant lending. So what we look at internally is payback periods at a very, very detailed cohort level, and those payback periods are improving significantly. And part of that is also because we are getting more efficient at acquiring customers at our capex per device as well as retention of merchants. But does that mean, so because we have two strong pillars in the net payment revenues, does that mean that essentially looking ahead it's going to be largely net payment processing margin that's going to do the heavy lifting on this revenue line item? It is the case that payment processing margin is growing faster, and partly because payment processing margin is growing faster, but combined with the fact that our lending penetration is going up, we are okay to make a little bit less money on device subscription per merchant.

J

Jay Kothari23:15

Great. And just one follow-up on that only, that the credit card on UPI growth, I mean, you've seen the whole industry credit card growth has just cratered right now to single digit. And generally what we've been observing is credit card on UPI moves 2x of that number roughly. So that has been like 30% when industry was at 15. Now that industry is down to 7 to 10, are you observing a similar moderation from that 30 to 20-25? And then of course the worry is our GMV growth then moves in sync with credit card on UPI, and then how does the margin expansion happen?

M

Madhur Deora23:52

What you're saying logically should have some impact, but I don't think we're seeing anything noticeable there. And I would point out that credit card on UPI is still a very small, very, very small percentage of overall credit card.

V

Vijay Sharma24:06

But one thing we can tell that our credit card on UPI percentage is more than the credit standard bank account payment percentage. That tells that we have a higher quality customers on our app.

J

Jay Kothari24:17

No, definitely, and that has been giving a very good margin improvement for our...

V

Vijay Sharma24:22

Margin improvement is rather about because we have a high quality. I mean, Paytm has been ever since, and all these events have still made the customers retain, means they are long enough old customers, and that means that they are high quality, which extends towards creditworthiness, which extends towards their credit card usage. Our credit card usage is more than the market share and order of magnitude once again. I mean, that is why our GMV growth has been higher, because if you notice, the same number of MTU didn't grow, but usage grew because the product became better, product became better for the customers who are better quality customers. So we talk about product quality, customer quality, not just the volume.

J

Jay Kothari25:01

Great. And lastly on costs and margin, we are guiding for more than 22% growth, and if I'm correct, now contribution margins we should expect between 55 to 60, but maybe more 55 to rather than 60. What was happening because of the PF impact? So that, I mean, and then indirect costs, I'm seeing after a great performance for eight quarters, is rightfully so you're investing in growth, is picking up. So does that mean that from here on the journey is going to be incremental rather than what we saw last year? If you see Q4 versus Q3, registered a bit growth is a decent 30 crore, but does it mean we should look at something more linear now than the exponential numbers that we saw through last year?

M

Madhur Deora25:52

We, I assume you're talking about EBITDA margin. Like we said in writing, we do expect significant operating leverage going forward because logically the math that you were doing, if we have a revenue growth acceleration which we are confident of, and indirect expenses growing significantly lower than just, the math is just embedded in that, that you would see significant operating leverage going forward.

J

Jay Kothari26:20

I was just talking about the journey, Madhur. Is it going to be upfronted or should we now think of this to be slightly more back-ended?

M

Madhur Deora26:28

I don't want to get into quarter-on-quarter, but if we are sitting here a year from now, we're confident that...

V

Vijay Sharma26:34

We would see, we would have, we'll look back and say there was significant operating leverage and margin expansion as a result.

A

Anand26:41

Great. Thanks and congratulations once again for a great set of results.

V

Vijay Sharma26:45

Thank you, Shan.

A

Anand26:47

Thanks, Jen. We'll take the next question from Koshik Aarbal, followed by Ragu Jan from Da Capital. Koshik, can you go ahead please?

Koshik, you are on mute. If you can unmute your line.

Rahul, you can... oh... Rahul, go ahead. You can ask us the question.

R

Rahul27:22

Yeah, hi. Thanks for the opportunity. Firstly, we have highlighted about the investment we intend to do on the cashback side. Can you highlight some of the consumer use cases? And also, from a run rate point of view, do we see a meaningful increase from the exit of 1 billion odd we invested in this quarter?

V

Vijay Sharma27:44

Sorry, can you just go to the first question again and quick cash out?

R

Rahul27:48

Yeah. The cashback investment that we want to do, are there any specific areas where we are trying to? Because we highlighted there are high margin segments that we would like to invest.

M

Madhur Deora28:01

Yeah. So, Vijay I think sort of already touched upon this. Our digital gold is one of those categories, and then which is covered in financial services just as a housekeeping point. And there are several use cases on marketing services, particularly travel, where we see good ROI on investments. And then there's also always a chunk of investment that goes into ensuring that you are building more engagement and more retention of customers.

R

Rahul28:37

Surely. And on the sales headwind side, do we see some more optimization to happen since the sunset on the PF scheme?

M

Madhur Deora28:48

I think it's a combination of sales optimization as well as subscription revenue per device optimization. We had said last quarter, in end of January, that we'll be able to significantly offset it over the next few quarters. And our Q4, and I think it was in response to a question, was that we would be able to offset 30 to 40%. So I'm pleased to report that we did achieve that, and we are confident that over time we'll be able to significantly achieve a full, near full offset, and some of that will show up in sales cost impact.

R

Rahul29:27

Sure. And just lastly, of course, people have tried asking this on the AI investments. Would this be also in line of creating a captive data center for more data inferencing, or this could be purely from an M&A point of view?

V

Vijay Sharma29:45

Rahul, there is nothing like we don't have a capex plan only. I mean, there is enough amount of capex that US big guys are doing, and we don't think that we have a gain in that yet. We do believe there is an opportunity for us to invest in AI, equal to like saying, let's say we are using agents for our customers, we can rent somewhere a data center, we can rent, let's say, in Medias, and then run our own model on top of it. That kind of investment is attention and effort, not just capital. We don't have a material capital investment plan right now on the table or in plan.

R

Rahul30:24

Thank you. Those were my questions. Thank you.

A

Anand30:28

Thank you. We will take the next question from Harshit from Prej, followed by Sachin Dhit from JM Financial. Harshit, you may please unmute your line and go ahead.

H

Harshit30:39

Hi Vijay. Hi Madhur. So the question was more to get some sense of our merchant ecosystem base. So Vijay, I think the point was that probably we are lending to a segment where they are okay to borrow at that 25-30% rough error for them now. And probably, obviously, I know that you guys don't give the disbursement number, but some sort of calculations, etc., whatever that number is, but that number, even if I take a 40-50,000 crore of annual run rate, we would be a large part of that market itself, the addressable market now. So I just want to get a sense that our payment service or financial distribution revenue growth from here on, will it be driven by the consumer loan products incrementally? And in case of merchants, do you envisage a situation that probably it's the lower yielding segment where we'll have to move to expand to maintain this growth run rate? So broadly, some color on the merchant profile and probably your market share within whatever you guys think as the addressable market for this range of merchant lending.

V

Vijay Sharma31:55

The best part is that we don't own the book. So everybody who wants to serve this customer is our potential partner, including banks or anybody else if you want to acknowledge that. So we don't have a market share problem because we own certain book versus somebody else owns certain book. They go to the current vendors who are interested in the vendor. We become the channel. Now the most logical captive customer of the customer are merchants where we are capturing everyday payment flow is us, most logical. Anybody else can also do it, but most logical is us on our customer base. We are penetrated less than 5% or 5.5% right now.

M

Madhur Deora32:36

All merchant base, about 7%.

V

Vijay Sharma32:38

About 7%, and that too based on subscription merchant denominator. Remember, the person who has a selection bias of paying a subscription, we are talking 7% penetration. All, obviously, there is a large number of merchant base otherwise beyond that. We fundamentally...

H

Harshit32:56

You know, my point on competition was more from...

Yeah, no, my point on competition when I asked was more from the distribution itself. That, for example, many other players will also have access to that customer over time, if not today, and the engagement, everyone will try to increase their engagement. So competition as a distribution partner is what I was trying to understand, rather than from the lender's point of view.

V

Vijay Sharma33:24

All right. So the merchant who is our merchant, if that merchant deflects from us as a payment merchant, we don't think that we would be in a superior state, or somebody who does not have that merchant will have a superior state of distributing. So it's a counter share kind of question, as you know, Harshit. If you... so there are two kinds of merchants: exclusive to us or non-exclusive to us. Only that in a non-exclusive case, if we are getting lesser data, we anyways are not going to help him get a loan unless we have a larger enough payment flow data that we are able to partner with our lender. Lender believes that yes, this is good enough, I would like to extend a loan. We don't, I mean, we don't have again much more to do but to retain a payment merchant and do a good job of distributing and collecting.

M

Madhur Deora34:11

And if I may just expand the question a little bit, just to the building blocks of this. So one is we have the core product of merchant loans, which you described is to smaller merchants, smaller ticket size. We've been doing it for 6 years really, really well, and there, as Vijay said, we have about 7% penetration, so huge room to expand that. The second is a TAM expansion story, which I think you touched about a little bit, Harshit, on the merchant loan product. That we do have types of merchants who may not find our current products or the products that we had in FY26 suitable. So those could be larger ticket size loans, for example, where, like we just said, because we partner with lenders, and if lenders want to distribute such loans to them, then we are a logical partner for that. So that's the merchant loan story. And slightly more broadly, we expect things like wealth and personal loans to be a much bigger contributor next year than before. So what we're excited about in this financial services line is that there are multiple drivers of growth next year which are quite visible.

H

Harshit35:15

Got it. Got it. Fair. Perfect. Done. Thanks a lot.

A

Anand35:19

Thanks. Thank you.

Thanks. We will take the next question from Piran Engineer from CLSA, followed by Sachin Shar from JM Financial, if that's okay. Piran, you can go ahead.

P

Piran Engineer35:33

Yeah. Hi. Hi, good morning, guys. Congrats on the quarter. Just firstly on the retail broking thing, you touched upon using AI to sort of grow that business. But firstly, are we targeting customers who don't have a broking account, or are we going after everyone? Because I'm assuming that out of your 7-8 crore active customers, a lot would already be broking with one of the incumbent platforms, right? So how are we thinking about that?

V

Vijay Sharma36:02

So we add on both sides. We add customers from both sides. We net and from other platforms, and we'll get new customers.

P

Piran Engineer36:09

But then come from...

V

Vijay Sharma36:12

New customers mostly, new are mostly towards mutual fund and SIP creations, and typically...

M

Madhur Deora36:20

It may be called churn from other platforms, or customers are okay to have multiple accounts.

P

Piran Engineer36:27

But then what's our value proposition for the core FNO kind of traders versus, say, a Zerodha or a Groww platform? See, also, I get a sense we analysts are not allowed to trade, but most traders want to be in charge of their trading, right? They probably don't want an AI agent to recommend, etc. So I'm not too sure how that strategy will help the core.

V

Vijay Sharma36:52

When we launch a product, you'll get to see it. I mean, there's nothing more about it. I mean, it's nothing better to say than when it gets launched. I mean, there is no secret spice. I'm going to say something. It's very visible to everybody. I see it as writing on the wall. I see it as everybody knows what impact of AI and addition of AI will do to the product for any segment that you want. It's as normal as that.

M

Madhur Deora37:17

And we will not indulge in price discounting, etc., right, to gain share there.

V

Vijay Sharma37:22

So always remember, Piran, our customer equation is payments. This is our monetization layers, which means that we are okay giving it slightly cheaper. Like if Zerodha is doing 20 bucks a trade...

M

Madhur Deora37:35

I don't think this is a price question yet. I mean, you're going now probably the time when we are competing with anybody else for the price. So see, see our pricing. We don't think the price is a value. We believe product is a value. Pricing is like commodity any which way for anybody to buy for.

V

Vijay Sharma37:54

Okay. Those who discount their product, they feel that is a value of their product.

P

Piran Engineer38:00

Fair. Okay. Just secondly, a data-keeping question. This quarter and last quarter, what is the proportion of DG in our merchant loan disbursements?

M

Madhur Deora38:10

Proportion of DLG is broadly flat, maybe slightly higher. As in, proportion of loans that go through D that come with DG is probably slightly higher. The amount of DG is flat, flattish.

P

Piran Engineer38:29

Should I take it at 20-25%?

M

Madhur Deora38:33

Or a bit higher than that. I don't think we've guided that before, and it's not a metric that honestly we try to sort of keep within certain guardrails or target a certain number. So I'd rather not.

P

Piran Engineer38:46

Got it. Okay. And just lastly, can you give us some color on online versus offline growth on the merchant processing side?

V

Vijay Sharma38:55

Online, I'd say we've started to grow the GMV. We've started to farm the account better, and we obviously started to add new customers. So there is, I would rather say that online has bigger opportunity now, considering there are D2C brands, there are offline people going online than we envisaged a year back, that I can say. So we will address and are addressing it accordingly in that approach.

P

Piran Engineer39:21

And Vijay, what proportion of our merchant GMV would it be now? I understand it's small, but like single digit small or...

V

Vijay Sharma39:29

No, no, it's... I mean, I'm... unless...

M

Madhur Deora39:33

We are a very significant player in online merchants, despite the fact that until last year we were not really adding new customers for greater than 3 years, right? So we're a very significant player there.

V

Vijay Sharma39:47

It is very meaningful double digits GMV, so it's not single digits and all. So I want to dispel that. We don't really look at it as a percent of total because they have independent growth drivers. There's huge now hunting opportunities as well as farming opportunities in online merchants, while maintaining pricing discipline.

M

Madhur Deora40:08

And in the offline merchant base, we have a very large enterprise business, as we have talked about before, which is independently profitable. And then we have the SMB business, as we call it, which has investments because that is very sales team heavy, but then it also is the target market primarily for a merchant-own business. So these three things have sort of independent growth drivers and run by very, very strong management teams in each case, and they march ahead. There is a common tissue that there are certain merchants who benefit from omni-channel solutions. So that sort of overrides, and that's the sort of collaboration between the teams, but they're largely sort of independent operations.

P

Piran Engineer40:57

Got it. Got it. Okay. Yeah, that's it from my end. Thanks and all the best.

A

Anand41:01

Thank you. Thank you. We'll take the next question from Sachin Digsh from JM Financial, followed by the last question of the day from Aluk Shivas from UPS. Sachin, you may go ahead.

S

Sachin Salunkhe41:12

Thanks, Anand. Hi, Vijay. And on the question side, my first question was on basically monetization of some of the AI products. I do understand it's still early days, but can you talk about anything that we are seeing, especially on the soundbox with AI capabilities part, or any other products where you are actually seeing some monetization benefits also creeping up already?

V

Vijay Sharma41:36

Yeah. So classically, marketing, which we used to give them tools, now we are asking them to do it through agents. So we believe that merchant will be able to do it easier because agent will do the necessary job of workflow taking care versus, let's say, we are giving certain marketing products. So that is the kind of approach that we are taking. So the product line item still will remain the same, and it will become better as a penetration and usage because we are using AI or allowing merchant to use or customer to use AI.

S

Sachin Salunkhe42:04

So sorry, which, if I understand it right, monetization is users linked, is it?

V

Vijay Sharma42:11

Monetization is, let's say, I'm saying the customer that you can use for acquiring or retaining customers. So the person may be... we may charge subscription plus usage or only the usage, so that the person does more usage. So approach will be, somebody wants to reach out, make an outreach to their customers. We can give it on a, let's say, you can run an ad on Paytm app. You can run communications through different communication channels to their customers, and then you can get the customer acquisition sorted out through our platforms. So these platforms monetizations, eventually what you're doing, it is a tool to achieve more customer acquired, more customer retained and repeating, or stopping the churn. Now, our customers can pay for certain per consumer basis, platform subscription basis, per usage basis. We are in the midst of these kind of discussions that which of these line item work for us or work for our customers.

S

Sachin Salunkhe43:10

Understood. Understood. Thanks for that. On the second question side, sort of a top-up on Harshit's question as well. Is it possible for you to break down the growth drivers of merchant lending? Right? I do understand it's growing almost like high 30s, if not 40s. Going ahead, can we break it down between that maybe the soundbox devices grow at this rate, penetration goes up by this rate, and ticket size or any such things grow at this rate, just to make it more sort of apparent for people like us.

M

Madhur Deora43:39

So good modeling question. I have the data, so I can share it. So historically, what we have seen is three primary drivers of growth. One is the expansion of the base. The second is the penetration rate, and the third is the increase in ticket size. And each one of these has been broadly similar. So roughly, call it 15% give or take on each one of these drivers. And you know, we can dig into this if you would like to. Now, going forward for our core business, we think this will probably remain the same. But as at an overall level, because as you go for TAM expansion, you may see that ticket sizes might on a blended basis be slightly higher, especially if you are more successful in the slightly higher ticket size loans and so on. So if you look at that separately, then the core business remains intact with those drivers, but there's an opportunity to sort of expand TAM beyond that.

S

Sachin Salunkhe44:45

And where do we see the penetration levels reaching, right? The 7-ish percent that you mentioned in terms of merchant lending as a percentage of subscription devices.

M

Madhur Deora44:55

Yeah, I mean, it has broadly been going up at 1% a year.

S

Sachin Salunkhe45:00

Okay.

M

Madhur Deora45:00

So if you think about a year ago, we were broadly at 6%. Now we're at closer to 7%, and that's about a 15% increase that I was talking about earlier. And the core is about the more aged merchant on the platform, the better the lending partner have a trust and confidence that this person's ability to repay back.

V

Vijay Sharma45:21

And...

M

Madhur Deora45:22

Right. And just to add to that, and this is sort of a logical follow-up to this, is that our engagement with merchants is going up very meaningfully, and that shows up in our GMV data, etc., as you would see. And that could mean that the penetration rates start to look a little bit better. The ticket sizes start to look a little bit better and sort of break out a bit. So those things do happen, and businesses obviously evolve as a result. But it is a very interesting... I think about 3/4 ago we had sort of pred... and we can share that earnings release with you separately. Exactly what we have seen over the last four years.

S

Sachin Salunkhe46:02

Understood. Understood. I mean, basically the math that I was trying to do, that we effectively can be talking about almost a 40% growth if we look at these three drivers, is how I was seeing it. Understood. Just one final question, and more like a quick response. There has obviously been chatter post that Paytm Payments Bank license thing happening, that Paytm might go for a new license, maybe an NBFC license as well. Any comments, any thoughts on that? That's my last question. Thank you.

M

Madhur Deora46:30

We do have a comment on that, and it is in our Q&A at the back of the earnings release. But just to summarize for this audience, one is there are two broad thoughts on that. The short answer is we're not super excited about going for an NBFC license, and the rationale for that is broadly two things. One is we really like our model where we stick to what we are uniquely good at, which is distribution, building great technology so that customers, merchants can convert better, insights on these merchants, as well as collection abilities. And our partners, then they are very, very blue-chip partners, are very good at managing capital, managing risk, managing cyclicality, and so on. So we do think this is a win-win partnership, and Paytm does try to be a win-win partner for whoever we partner with across the board. And here, obviously, we're talking about lending. The second point is to your earlier question, we see the opportunity as absolutely massive. We have a very large payments market. That market is growing. Our market share is growing, and that combined with low penetration means that the opportunity in the short to medium term already is very, very large. We do think that logically that loan book should sit on multiple balance sheets, not a single balance sheet, neither ours nor a single partner's. So aggregating many, many more balance sheets, we think, helps us achieve our medium-term goals a lot better than trying to anchor it on one balance sheet.

S

Sachin Salunkhe48:16

Thanks, thanks for that, Madhur, and all the best.

V

Vijay Sharma48:19

Yeah, I have Mr. Poshal asking a question in the chat window, and I'm answering till the time... whom are you getting?

A

Anand48:25

So we have the last question from Aluk. Aluk, you could unmute yourself and so on, but I'm just answering what is written here, that can you give color around asset quality and lending distribution business and so on. Sir, we are absolutely not in the asset quality business because we do not own the risk or the credit that is disbursed on any book. If ever, our commitment is towards FLG, it is completely the decision and ownership of the book that sits with lenders. So this question does not sit with us. This is our role, it's like saying...

V

Vijay Sharma49:12

So we are the retailers, not the manufacturers, if you will, of this. And then second question you are asking, sir, is that what is the non-MDR linked payment instrument GMV? It's very easy. RBI has different kinds of data. Our mix of MDR-bearing instruments is growing, that is net payment margin is growing, and...

M

Madhur Deora49:35

I think on question number three, it is the case that we have capex, but next year we expect EBITDA to be significantly higher than capex. So your observation about last year is correct, 500 crores of EBITDA, but we have capex. Should I take Sahil's question as well?

V

Vijay Sharma49:51

What, yeah, I want to say...

M

Madhur Deora49:52

Sahil, on the merchant side, we have three or four drivers of monetization. One, like you mentioned, is subscription. The second is MDR on MDR-bearing instruments. So if they're accepting credit cards or credit card on UPI or Paytm Postpaid, all of those are MDR-bearing instruments. And the third, as you pointed out, is merchant loans. So those are the three big drivers of monetization. It is the case that not every merchant may be paying us at least one of the three, but vast, vast majority of merchants do, and at a cohort level, the payback period is always within acceptable bounds.

V

Vijay Sharma50:35

Yeah. Thank you for asking these questions in the open chat. As you know, we can take those also, and then we have Aluk here.

A

Anand50:43

Thank you. Aluk, you may unmute your line, please go ahead.

A

Aluk50:46

Sure. Yeah. Hi, morning. Morning, Vijay. Morning, Madhur. I just have one question. If you could provide some color on affordability. So in your earnings release, you have mentioned that it has supported margin. So just in terms of whatever you are comfortable sharing, in terms of, let's say, GMV, what percent of our machines have affordability enabled? What is the outlook here, value proposition, and so on. Thank you.

V

Vijay Sharma51:12

I think the one thing I can say is more than half of our machines are enabled for disbursing EMIs. I don't think that we have GMV numbers by the instrument, but you can be very sure this is in enterprise segment, in long-tail segment, both alike. It is liked because they want to make affordability as a feature for the customers on the shop, and we continue to aggregate everybody. And aggregation, as you know, is our primary role here. So we continue to migrate from as many people...

M

Madhur Deora51:45

And we have very, very strong partnerships with both brands and banks, who are the other piece of the ecosystem. So there's merchants, and there's banks and brands, and then there's obviously the consumer. And the greater than half number that Vijay gave for enablement on card machines, that is very significant because not 100% of merchants need EMI necessarily, right? So it is limited to certain categories of merchants, generally those who have higher ticket size transactions. And we're making huge progress in this. We are gaining share because of focus on this business, and obviously we have talked about the impact on processing margins.

A

Aluk52:29

Okay. And fair to say, Madhur, that this will be largely in electronics, the machine, in terms of segment?

V

Vijay Sharma52:35

Electronics is an anchor category, but there are many other categories. Healthcare is a category...

M

Madhur Deora52:41

Credit, normal, anything else beyond electronics, we... furniture...

V

Vijay Sharma52:46

Furniture, fashion, even beauty products...

M

Madhur Deora52:49

Subject 5,000 plus ticket size helps us anywhere.

V

Vijay Sharma52:54

Even something like quick commerce, which you may not expect, does actually have some percentage EMI-based transaction. So I'm giving you the sort of contrasting example which might not be super obvious. It wasn't to me until I saw the data of where is our volume coming from.

A

Aluk53:14

Okay, got it. Thanks a lot.

V

Vijay Sharma53:17

Thank you. Thank you. I'll take a question from Arjun Jain, who said that any interest in building paid loyalty program on consumer merchant side for drive data lock-in. We have gold coin-based product, my friend, and it is not paid. It is for everybody who uses more Paytm gets more gold coins. Use Paytm for every P2P, P2M payments or every other thing. And then Zina Singh says congratulations on good set of numbers. Thank you, sir. Eagerly waiting for AI tools on Paytm. Thank you. Same here.

A

Anand53:45

Thank you. With that, we come to an end of this call. A replay of this earnings call and the transcript will be made available on the company website subsequently.

Paytm Q4 FY2026 Earnings Call | First Full Year of Profit | By Paytm | #PaytmKaro

About Vijay Sharma