Paytm Says It Is Profitable At Contribution Level With $100 Bn GTV

Noida-headquartered digital payments company Paytm on Monday said that it has achieved profitability at the contribution level. Vikas Garg, deputy CFO, Paytm said that the company’s contribution margin has grown from a loss of 30% to profit of 12% of the revenue.

Paytm said it defines contribution margin as revenue minus all direct costs incurred in providing services to customers. These costs include payment gateway, marketing expenses, promotional cashback and all kinds of charges/commissions paid by the company.

To become earnings before interest, tax, depreciation and amortisation (EBITDA) positive, the company will have to earn to recover people and establishment costs. Garg also said that the company has recorded a gross transaction value (GTV) of $100 Bn, up from GTV of over $50 Bn, while clocking 5.5 Bn transactions in FY19.

Garg said that the company has seen 15% quarter-on-quarter growth for FY20. With this the company also expects to significantly lower its losses for FY20, from INR 3959 Cr loss in FY19. Garg also said that in the last two quarters, the company has seen over a 10% reduction in total costs. He added that focus on the merchant payments have given the company lower costs and higher revenue growth.

Garg further said that the Q-o-Q growth of the group, including all its subsidiaries, is much higher than 15% of One 97 Communications. “Further, the last financial year was a year of significant expansion of the payments business which is a very low margin business,” Garg explained.

Founded in 2010, Paytm is one of the first digital payment platforms in India. Besides individual transactions, merchant payments and PoS systems, it has ventured into financial products such as a payments bank and credit cards. It also supports a native wallet and UPI for payments and transactions.

Paytm is also active in the ecommerce space with Paytm Mall, and has also ventured into event ticketing services, wealth management, insurance and gold services. Talking about these verticals, Garg said that new verticals in financial services have now started yielding returns and are contributing to revenue growth in the current year.

Paytm deputy CFO explained the company’s revenue share from different verticals saying that the payments business is the biggest vertical for revenue generation, followed by commerce and financial services. “Financial services is the newest among all and have registered great growth in the current year,” he added.

Paytm has close to 130 Mn monthly active users and more than 450 Mn registered users, as of July 2019. The company had recently said that it has allocated INR 750 Cr to expand its monthly active users. The platform planned on targeting 250 Mn new customers, and onboard new merchants in Tier 2 and Tier 3 cities and towns.

For offline payments, the company aimed to enable 20 Mn retail merchants to accept digital payments through Paytm QR. Further to grow offline merchant payments, Paytm said it will invest INR 1,000 Cr more this year. The company wants to gain market share to 2/3rd of the mobile payment market in India.

Paytm founder Vijay Shekhar Sharma had recently said that the company will start preparations for an initial public offering (IPO) within two years. Paytm chief said he wants the firm to generate more cash before entering the public market.

“I’d prefer to see a 5% reduction in margins right now, maybe 10% incremental, so maybe two years. I’m talking free cash, not profitability. I make money, but I’m looking to make free cash, and then I’ll go (for listing). When I’m comfortable issuing bonds that I can sell in five years, then I’ll go (for listing),” Sharma explained.

As the company hits contribution level profitability, Sharma’s aim for going big before IPO doesn’t seem too far.