“Losses due to extremely careful accounting”


Just over a week after listing, Paytm’s parent company, One97 Communications, announced its results for T2FY22. The company’s operating income rose 64%, while the consolidated net loss widened by 8% to Rs 473 crore. One of the main drivers of revenue growth was the 52% growth in non-UPI volumes. In an interview with TOI, Vijay Shekhar Sharma, founder and CEO of the company, explains how the losses are not caused by spending money on volumes, but by careful accounting, which forecasts acquisition costs at advance.
You announced your results within days of registration. What was the response from analysts?
We had our first call for results. I can only refer to experience with what I know. I would compare this to the experience of joining an engineering school after coming from Aligarh to Delhi. The IPO process was like admission and the earnings call was the review immediately after. Before the call, the three of us who were on the call questioned each other.
Your contribution margin has jumped but the loss has also increased? Many non-professional investors also do not understand the contribution margin.
Our margins have grown faster than our revenues. Even though people don’t understand contributory profits, which we have tried to explain, ebitda (earnings before interest, taxes, depreciation, and amortization) is a straightforward measure. Our ebitda margins are much higher. Previously we had an ebitda margin of -64%, which is now -39%.
What is the reason for the increase in costs?
As a business, our expenses can be broadly categorized between people and marketing. Our marketing spend is stable, but we are hiring more people, more engineers, which is good. It’s the equivalent of growing a factory into a manufacturing business. The difference between investing in a plant and our investment is that we do not amortize our acquisition costs. A merchant we acquire has been a subscriber for at least a year and generates income either through loans or MDR during the year while the cost of acquisition is provided up front. The losses are not attributable to the fact that we sell goods worth Rs 100 to Rs 90. Our accounting is extremely careful. We charge 100% of all marketing, cash back, sales and system costs immediately. The reason ebitda has improved is that traders acquired earlier are generating income.
Analysts seem to focus largely on the lending industry …
Banks have the lowest cost of funds and they are also required to provide loans to priority sectors worth less than Rs 50,000. We have a technology platform that can provide, service, and collect loans. These are short term loans and we have demonstrated our capacity through a few cycles and the pandemic. The average size of our banknotes is 4,000 rupees, which no lender could touch. It’s the easiest thing to extend a Rs 1,000 crore loan through a single corporate relationship. We disburse Rs 7,500 crore (one billion dollars) through small loans.
How to earn money with free payments on UPI?
I have always maintained that having zero fees on UPI is important because it helps build a digital acceptance ecosystem. Paytm generates revenue because once a retail merchant matures, they also begin to accept other digital payment instruments. Our non-UPI increased by 52%. On non-UPI transactions, we earn more because we also receive an issuer fee. Our transaction processing cost as a percentage of volumes has increased. As a percentage of the gross value of goods, payment processing costs have fallen.
The clientele you mentioned (5 crore +) is larger than the population of South Korea. Why isn’t Paytm Mall used by big brands for deals?
WalMart has an “everyday low price” business model. We follow a similar strategy in payments. Rather than offering deals in a few high-end brands, we offer cashback on every transaction, whether it’s gasoline, power, or an iPhone. We do not focus on selected key clients and the model is more inclusive. Also, unlike ecommerce platforms, we do not sell our products, rather we are open to hosting all ecommerce platforms on our app.
Some analysts believe that payments can’t be a ditch …
Payment applications can come from banks or independent service providers. It’s now clear that payment app companies are working harder than banks to deliver a customer experience. Now, if one uses a payment app for transactions, it makes sense that customers prefer the apps where their money is located. Banks can store money, but they don’t offer the same payment experience. Paytm has the advantage of storing money in the bank account, wallet or through a credit facility. We have brought an innovation in the method of payment (QR code, phone number) and added the next level of convenience (sound box). Customers can use their fixed deposits to make payments seamlessly. Customers can use Paytm for paying tolls on Fastag without locking their funds.
So other than loans, how will Paytm make money?
Everything on the app, beyond payment, generates revenue. In fact, the use of the wallet for payments in organized retail or payments with Fastag generates income. UPI is like bread and milk in a kirana store, it may not generate income but expand the ecosystem.
Billdesk payment gateway made a profit of Rs 270 crore. How much has Paytm made in the payment gateways industry?
Our income from merchant payment services increased 64% to Rs 400 crore. This is due to the growth of non-UPI payment volume in the payment gateway and the growth of devices.
The RBI said that the transition from a payment bank to a small financing bank can only be authorized after 5 years?
We are less than a year away from the end of five years (as of May 2022) and are open to exploring opportunities if they arise. In addition, the net worth of Paytm Payments Bank is Rs 400 crore compared to the Rs 300 crore prescribed by the regulations.
The pandemic and the lockdowns that followed gave a boost to digital payment and e-commerce. What impact would easing restrictions have?
There is a benefit to revenue from travel, film and event ticketing, which has been affected by the lockdown during the pandemic. We expect a good response from customers as it is unlocked.
How do you think the market will react?
Hope more people in the market can see our performance in detail. We have listed in India so everyone has the opportunity to participate. It is important that the retail investor has the complete picture. Yes, our losses increased by 8%, but our revenues increased by 64% and ebitda increased by 50%. This is the full picture.


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