PayTM Q4 results and the Future of Indian Fintech

I. Introduction

In FY23, Paytm's revenue was Rs 7,990 crores or nearly about $1 Billion, an increase of 61% over the previous year. Compared to the same time a year earlier, consolidated revenue from operations increased 51%, from Rs 1,467 crore to Rs 2,334 crore. EBITDA pre-ESOP increased by Rs 1,342 cr for the company in FY23. And the street cheered, with a 6% increase in its share price since the previous day's closing.?

Read the Full report here

Though the price is still at a 67% discount from its listing price, these quarterly numbers were indeed very heartening. Truth be said, a lot was hinging on PayTM's result, not just for shareholders, but the broader Fintech industry in India.?

But, a very important announcement before we proceed. All of what follows is not Financial Advise. It is simply the weird way of your favourite Fintech Chronicler, to let everyone know about her enthusiasm of the world of Fintech. So cut the girl some slack, and geek out with her.

And if you scratched your head, wondering who this Fintech chronicler is, then let me first extend a hearty welcome to you. I am Kamalika, and every Monday, I dive deep into the world of Fintech, Crypto and web3, focussing on one and only one element of it. Today it just so happens to be PayTM, and their better than expected quarterly results. And we will try to answer the question what this means for the rest of the Fintech Industry in India!

So lets get started.

Background about PayTM

Feel free to skip this section if you’ve heard or know too much about PayTMs history till 2021.

Paytm, created by Vijay Shekhar Sharma in 2010, is a popular mobile payment and financial services platform. Through its platform, it provides consumers with monetary services, mobile and DTH recharge options, and more. Initially launched to facilitate online money transfers between retailers and consumers, the company has since grown to encompass wallet services, e-commerce infrastructure, and more to improve the quality of life for Indians. To date, 58 million Indians have opened accounts with Paytm Payments Bank, making it the largest digital bank in the country.

Paytm, created by Vijay Shekhar Sharma in 2010, is a popular mobile payment and financial services platform. Through its platform, it provides consumers with monetary services, mobile and DTH recharge options, and more. Initially launched to facilitate online money transfers between retailers and consumers, the company has since grown to encompass wallet services, e-commerce infrastructure, and more to improve the quality of life for Indians. To date, 58 million Indians have opened accounts with Paytm Payments Bank, making it the largest digital bank in the country. Due to "certain material supervisory concerns," the RBI has lately restricted the company from accepting new account applications.

It has also developed a tiny app store to aid Indian software developers and entrepreneurs, as well as services in stock broking, the national pension system (NPS), gaming, and insurance under its Paytm Insurance brand.

Ticketing for films, theme parks, aeroplanes, trains and gift cards were all introduced in 2016. Paytm Gold, which was introduced in 2017 and is still a major participant in India's e-gold industry, has been downloaded more than 10 billion times.

Then in 2020, the COVID virus spread, providing digital payment platforms like PayTM, PhonePe, and Gpay a boost in India.

PayTM held its IPO in 2021 amid much hoopla. Shares of Paytm started trading at ?1,950, down 9.3% from the IPO price. On the second day of trading, prices dropped even further, hitting a new low of ?1,283 per share.?In 2022, it hit its all time low of ?438

P.S.: I had purchased about 50 shares when PayTM fell to its 490 range, which to me seemed fair at the time.?

Significance of PayTM's Q4 results?

With those kinds of disappointing results, its easy to see why the street was watching PayTm with Hawkish eyes. PayTM had to fight to keep investors confidence in them to turn this story around, or risk becoming like the skeletons in the aftermath of the DotCom Bubble.

As mobile payments continue to gain popularity in India among both consumers and businesses, the company's Average Monthly Transacting Users (MTU) for Q4 FY 2023 increased by 27% YoY to ?9 Cr.

You could almost hear the collective sigh of relief from the Consumer Fintech Space, when the quarterly results came out. D-Street too cheered on, and rewarded the company by showing a 6% uptick, after months of stagnating at a ?600 level. ?

II. PayTM's Performance

But, I would say you could have predicted that PayTM was doing well, or at least was not as pessimistic as the street’s outlook.

https://twitter.com/vijayshekhar/status/1621545111334289408?lang=en

While social media did have a banter going around on this, with many people questioning and even making fun of this new concept of adjusting everything, before all kinds of costs (self included in this group).

Before we figure who has the last laugh, lets jump into some of the interesting numbers that caught my eye.

Revenue and profit growth

Quarter on Quarter we saw the Operating Revenue of PayTM go up 13%. But over the same qurter last Financial year it was a 52% growth.

However what I did not like seeing was the reduction in their Balance sheet, specifically the 3% reduction in rights to use Assets.

What this means in layman terms is the possession and usage of leased property by the lessee during the term of the lease. The asset is the sum of the original lease liabilities, direct costs incurred prior to the lease start date, and lease incentives received, minus any lease incentives received.

So, what this tells me is that, their SoundBox, while at one point was very innovative, is losing steam to the lower cost options from PhonePe, BharatPe and the others. Alarming, especially considering, I thought their subscription business was a great moat, that could be used to upsell credit to their merchant base.

PayTM's user base

Their merchant base grew to 90 Million, demonstrating a year on?year growth of 27%. This also translated to their Gross merchandising volumes, a key metric to measure payment volumes, grew 40% in the quarter.

The good news does not stop there. The number of merchants paying subscriptions for payment devices has reached 6.8 million as of March, an increase of 10 lahks in the quarter alone. But that is the concern I have. If the paying merchant base has grown but the associated asset has not increased in value, then Businesses are bargaining for better rates, and down the line this could mean compressed margins.

Coming to the retail user base they touched a new milestone of 4.3 million users on UPI Lite. ?

Key business segments contributing to growth

This fly wheel is probably all we need to understand where growth for PyaTm comes from.

The input metric here is the growth of their pyaments business. Which acts as the lever for them to cross sell “Commerce Services” to both Merchants and Users.

If that had to translate to Financial Products then on the Retail side we’d have BNPL, Co-branded credit card and personal Loans. While for merchants, they’d finance their need for working capital to grow their business.

All other types of financial products, like their Payments Bank deposits, the insurance and Mutual Funds business, are more like the cement, to strengthen the moat. ?

Comparison with peers in the Indian fintech industry

And this playbook is no different from how most other Fintech operate too.

Every one uses Payments as the entry way, to gather data on new to credit users, and then sell them a loan (they may not have needed, or known that they needed).

Take Cred for example. (You can read my post on why it won’t work for them here ). They started off with a solution to pay your credit card bills. And today when road to profitability is the ask of Investors, they have started to aggressively push the pedal on lending to this base of customers.

On the B2B fintech too, the scene ain’t much different. PineLabs, which was solely into providing a means for businesses to accept non cash payments, offline first and now online too,?has moved to offering loans to their business clients . With the promise of helping it to grow the merchants business.

The real metric to decide this race will be the leading indicators. How mch is their Payment volumes increasing, and also a lagging indicator, of what their default rate is as a percentage of the loan book.

III. PayTM's positioning in Indian Fintech

That brings us to the question, where does PayTM stand when it comes to this crowded Fintech Industry ?

PayTM's current market share

In Payments, UPI is king in India. Lets take a look at where PayTM stands with respect to competition.

Well, no wonder then that PayTM was all for the RBI’s proposed capping of 33% per App provider for UPI. They clearly have atleast another 20% they could gain from it.

What about Ledning? The biggest Profit use case for ?all Fintech?

PayTM disbursed ?4,468 cr of loans in the?month of March’23. That same month, the overall credit outstanding grew from ?139 trillion to ?141 trillion. So one could say roughly ?2 lakh crore loans disbursed. I don’t want to count the number of decimals in my % for that one.

No luck on the Money Market side, where Zerodha has been the undisputed leader for a long while.

PayTM's strengths and weaknesses

Not a very positive picture now is it ? So what really are the reasons for which people re rallying behind PayTM? I mean, what really is the strength of the company ?

The one thing I do really admire them is that they never shy away from experimenting. Be it the UPI-PayNow rails for cross border payments between India and Singapore. Or the Innovative Soundboxes to let Merchants know as they receive a payment on the QR.

Innovation and Experimentation are their strongest suite. And the fact that they are still able to innovate, while trying to tame their burgeoning losses, is the?silver lining I was looking for.

Strategies to maintain growth in the Indian fintech market

The big question is, is this innovative stance enough for them survive in the long run? And what should they be focussing on to maintain their position in the fast growing market?

One way would be to start divesting off the ventures that have been de-growing. And their PayTM mall could be one such vertical. I mean, I get the ONDC play is?alluring. You could use that as a segue to finding the right kind of merchants to grow your lending book. But given the tepid market growth, is it gonna provide them with a wide enough funnel ? Or at least one where the conversions are much better?

IV. Future of Indian Fintech

I thought long and hard before writing this section. Because people would know how very exuberant is am about the Future of Fintech. So what more can I tell them that they don’t already know ? And can I give an account based on facts without my biases coloring it?

Lets try.

Evolving Indian fintech landscape?

G20 seemed like a good place to start. One of the key trends in the announcement so far, is that we need to move towards a world where payments are available round the clock irrespective of which part of the globe you want to transact to.

Unfortunately, cross border payments have been a difficult beast to mount, given the number of middle men involved.

Key trends shaping the future of Indian fintech

Next horizon to watch the break of the dawn would obviously be the regulators.

And no I am not just referring to Gary Gensler whimsical decision of charging cryptos with being Securities.

But even in India, regulators have no qualms is halting Fintech in their tracks if they sniff the slightest of circumvention of the written laws. Meaning that there is no Grey Area in Fintech and you dare not to play there.

The good thing however is that our regulators are quite tech forward. Like the Digital Lending frameworks.

And that tells me that India will pace faster than other nations on several of the Fintech frontiers where there is?a regulator actively involved.

Conclusion : Outlook for PayTM and Indian Fintech Sector

So the big question for me is, on the basis of these information, would I be open to revising my GTT from the 540 level to the 650 levels?

To be very honest it is a rather steep jump for me. Especially given the lack of dividend returns. Or really any returns. So I would wait a quarter, before I think of revising my portfolio and decide to add more of PayTM.

And I am hoping by then, we have more Fintech listing (hard call really) for me to have comparable data to understand what is happening with my companies and which direction the industry is trending.

So till then, I guess I’ll just keep writing about them. See you next time.