Paytm is synonymous with digital payments and is one of the leading players for digital transactions in India. Earlier, its revenue streams were fluctuating but with passage of time, they have become crystallized into following three stable, sustainable and to some extent predictable streams.
1) Payment Services
Merchants using Paytm services pay usage charges which management expects to remain in the range of 7-9 bps of GMV (gross merchandise value). Digital payments are expected to keep growing at high rates in foreseeable future translating to matching growth for Paytm.
Also, Paytm has an installed base of 79 lac soundboxes at merchant outlets which fetch it approx. Rs 100 pm. This base is growing in line with digital adoption in the country.
This vertical contributes 40% to Paytm revenues. It grew by 68% in Q1FY24.
2) Financial Services
Paytm distributes loans on behalf of various banks and NBFC’s to its merchants, individual customers and BNPL (buy now pay later) schemes. Current run rate of disbursals is 15000 cr per qtr ie 60000 cr per annum which is growing at a fast clip. That this is an impressive annual disbursal value can be appreciated when juxtaposed with HDFC Bank, the largest private sector lender in the country. HDFC Bank has approx. 10 lac cr loan book which grows by around 15% pa ie it grows by 1.5 lac cr on net basis every year and Paytm which is an upstart disburses 60000 cr (though this is on gross basis). Paytm’s take rate for these disbursals is 3 to 3.5%. Most reassuring aspect of these disbursals is that while RBI has allowed platforms to issue FLDG (first loss default guarantee) of 5%, Paytm does not take this risk on its books. Hence there is no default risk to Paytm if money does not come back.
This vertical contributes 35% to Paytm revenues. It grew by 93% in Q1FY24.
3) Commerce and Cloud Services
Main components of this stream are ticketing, advertising, co-branded credit cards. These are relatively slower verticals.
This vertical contributes 25% to Paytm revenues.
Overall revenue growth rate of Paytm in Q1FY24 was 39% YoY. In this period, Paytm reported Ebidta (before ESOP) of 82 cr and management is guiding free cash flow generation by the end of FY24. Its current market cap is 50000 cr which is not cheap for a ‘no-profit no-loss company’ competing with biggies like Google backed G-Pay, Walmart backed Phone Pe and imminent arrival of Jio Finance.
However, the kind of acceptability and presence Paytm has built is commendable and formidable. Many conventional brick and mortar lenders without digital presence will have to piggybank on some fintech to stay relevant and it could very well be Paytm. In fact, some like Piramal Finance have already tied up with it and many more are in the pipeline as per management.
Paytm is expensive on a calculator. And it will turn out to be expensive in reality, if these assumptions do not play out. But if they do, Paytm could be a decent long-term story.