Encouraging results for PayTM (One97 Communications) for the 2022-23 financial year (Q4FY23) have led to a surge in the company’s stock price, gaining nearly 5 per cent during Monday’s trade.
Photograph: Rupak De Chowdhuri/Reuters
PayTM reported Q4FY23 revenues at Rs 2,330 crore, up 51 per cent on year-on-year (YoY) basis (13.2 per cent quarter-on-quarter or QoQ), led by monthly transaction user (MTU) growth of 27 per cent and average revenue per user or ARPU growth of 19 per cent YoY.
MTU is defined as users with at least one transaction/month.
PayTM recognised the full year UPI incentives of Rs 180 crore in Q4 and about Rs 133 crore is for the first 9 months.
Adjusted for UPI incentives, revenues grew by 5 per cent QoQ and 43 per cent YoY.
The growth was led by the merchant payments business, which was up 14 per cent QoQ (adjusted for UPI incentives), while financial services grew 6.5 per cent QoQ, led by a rising borrower base of about 5 million in Q4FY23.
Adjusted Ebitda (earnings before interest, tax, depreciation and amortisation) stood at Rs 100 crore up from Rs 31.3 crore in Q3FY23, after excluding UPI incentives.
The Ebitda margin (ex-ESOP) improved by 300 basis points (bps) to 4.5 per cent of revenue, up from 1.5 per cent in Q3FY23.
The net loss dropped to Rs 170 crore in Q4 from Rs 390 crore in Q3.
In FY23, the net loss stood at Rs 1,780 crore versus loss of Rs 2,400 crore in FY22.
The net payment margin grew to 15 bps, and this resulted in improvements in the contribution margin (revenue minus variable costs of services) to 52 per cent adjusted for UPI incentives.
The net payment margin grew 158 per cent YoY to Rs 690 crore (107 per cent YoY excluding UPI incentives).
There was healthy device subscription revenue as subscription devices rose 1 million to 6.8 million.
Breakups indicate revenue from payment and financial services grew 59 per cent YoY to Rs 1,920 crore, with 182 per cent YoY growth in financial services and 61 per cent YoY growth in payment services to merchants.
Financial services contribute about 20 per cent of revenue.
Revenue from commerce and cloud services grew 23 per cent YoY to Rs 390 crore due to high seasonal volumes.
Active cards increased to 0.6 million, up 140,000.
Direct expenses dropped to 45 per cent of total revenues (49 per cent in Q3FY23), due to lower promotional cash-back and incentives.
The loan distribution business is a key driver for growth in revenues as well as profitability.
The revenue from loan disbursement is up 2.8x YoY for Q4FY23 and ‘take rates’ (the percentage paid to a third party such as PayTM by the lender) are down to 4.4 per cent in FY23 from 5.7 per cent in FY22.
Assuming a stable ‘take rate’ of 4 per cent, there may be 50 per cent compound annual growth rate (CAGR) for next two or three fiscals in distribution revenues.
One possible area of concern is a concentration of lending partners – PayTM has only about 6 partners who offer credit and hence, there may be a concentration risk.
There appears to be a strong management focus on profitability.
Management guidance is that PayTM targets being free cash flow positive in the near to medium term.
There’s healthy momentum in consumer and merchant loans with a reduction in bounce rates and lower expected credit losses.
Analyst reactions are positive but valuations (mainly based on enterprise value/Ebitda multiples or on sales multiples) vary considerably from around Rs 750 at the lower end, to around Rs 1,250.
The current stock price stands at Rs 724 per share.
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