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Highs & lows of PayTM: How the original e-wallet provider reached first-ever operating profit

This journey to operational profitability has been a long one, and hasn’t been particularly easy for the company, says CEO Vijay Shekhar Sharma.

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New Delhi: After an initial set-back to its IPO (Initial Public Offering) launch in 2021, fintech company PayTM has finally achieved operating profitability of Rs 31 crore, the company said in its Q3 results posted last Friday. While this doesn’t mean that the company overall is in profit, it does mean that its day-to-day operations are becoming profitable, a healthy sign. 

From starting as a provider of e-wallet services, to now having a large part of its business being driven by its lending services, PayTM has been quick to adapt to changing market scenarios and nimble enough to take advantage of emerging areas of demand in the market. 

EBITDA, or earnings before interest, taxes, depreciation, and amortisation, is a conventional measure of profitability. Recently, however, an increasing number of startups have also started reporting an unconventional measure of profitability — EBITDA before ESOPs (employee stock options). 

EBITDA before ESOPs basically refers to the company’s earnings without including the expenses it incurs by giving its employees stock options. The advantage of such a measure is that employee stock options are non-cash expenses and so don’t impact the free cash flow of a company. In other words, startups argue that EBITDA before ESOPs is a better indicator of the profitability of their operations. 

So, while PayTM has an EBITDA before ESOPs of Rs 31 crore, it continues to be loss-making at a consolidated level, albeit having minimised their losses for Q3 FY 2023 to Rs 393 crore as compared to Rs.797 in Q3 FY 2022. 

Also Read: India online payment method | Paykassma

Journey to operational profitability

Addressing the shareholders, Company chief executive officer Vijay Shekhar Sharma said that PayTM has “achieved this milestone of EBITDA before ESOP cost profitability in the December 2022 quarter itself. This is three quarters ahead of our guidance.”

This journey to operational profitability has been a long one, and hasn’t been particularly easy for the company. 

PayTM’s journey from a start-up, to becoming a unicorn and then launching its own IPO has been one of high-high, until it became a publicly listed company. 

The growth story

Launched in the year 2000, PayTM’s parent company One97 Communications took its first big step in the year 2010 when it launched the mobile recharge. Till then, people used to pay for their mobile recharges using physical cash. 

In 2014, the company launched a mobile wallet and was hugely benefited when the government announced demonetisation in the year 2016. People struggling to find cash found PayTM an easy option to switch to. Advertisements with Prime Minister Narendra Modi’s photo of course added to the popularity of the brand even more. Starting with 100 million users in the year 2015, PayTM reached 200 million in 2017, post demonetisation and the company currently has 330 million registered users.

While it had already entered the Unicorn club in 2015, it raised $1.4 billion dollars from Softbank in 2017. It integrated the BHIM UPI pay app, a mobile payment app developed by National Payments Corporation of India, in 2017. Following which, the company launched PayTM Bank and Insurance in 2021. 

The launch of the United Payments Interface (UPI) platform by the government of India in 2016 was also another huge boost for the company. Within a year or so, PayTM launched its UPI services that rode on the government’s platform. According to the latest data by the National Payments Corporation of India, out of the 69 UPI apps in operation, PayTM Payments Bank itself accounts for more than 22 per cent of UPI transactions by volume and nearly 16 per cent by value. 

IPO setback

The blip in PayTM’s journey came in 2021 when its IPO launch tanked miserably. What was India’s largest IPO, raising Rs 18,300 crore from investors, lost almost a fourth of its valuation on listing day. 

Analysts said that it was because of over-valuation. Macquarie Research had noted that Paytm’s valuation was 26 times its estimated price-to-sales ratio for 2022-23. The global benchmark is 0.3-0.5 times the price-to-sales growth ratio for fintech firms. 

Since then, the company has diversified its business offerings, with its latest quarterly report saying that growth has been driven by an increase in merchant subscription revenues, growth in loan distribution and momentum in commerce business.

In January 2021, the company entered the loan distribution sector offering Instant personal loans to salaried working class persons. 

According to PayTM’s financial reports, the number of loans disbursed by the partners using PayTM as a platform grew from 4.4 million in December 2021 to 8.1 million in December 2022. 

Value of loans disbursed through the platform grew 375 percent year on year (YoY), from Rs.2181 crore in December 2021 to Rs.9958 crore in December 2022.

Growing borrower base

Snap to the present. In Q3 FY 2023, revenue grew 257 per cent YoY to Rs.446 cr and accounts for 22 per cent of total revenues, up from 9 per cent in Q3 FY 2022. The growth in revenue was primarily driven by 357 percent YoY growth in the value of loans disbursed.

The company said that it partnered with lenders and provided a fully digital loan disbursement and collection platform. In Q3 2023, the number of loans disbursed through the platform grew to 10.5 mn, growth of 137 percent YoY. The value of loans disbursed grew to Rs 9,958 crore, a growth of 357 percent YoY and 36 percent QoQ. 

“We believe there is a long runway for growth as our payments consumer and merchant base offers a large addressable market. Total number of unique borrowers who have taken a loan through our platform has increased by 1.4mn QoQ to 8.1 mn in Q3 FY 2023. This growing borrower base offers us tremendous upsell and lifecycle benefits,” the report added. 

Number of loans at 10.5 mn are up 137 percent YoY. As of December 2022, 8.1 mn borrowers have taken a loan on the platform and 1.4 mn new borrowers have been added this quarter. 

“Growing borrower base offers tremendous upsell & lifecycle benefits. Our payments consumer and merchant base offers a large addressable market, thereby providing a long runway for growth,” read the report. 

During the Investor’s call, the Founder and CEO said that the “focus is on monetization” and the trend of generating profits is expected to continue. He said he expects PayTM to become a free cash flow generating machine. 

“This has been made possible due to the relentlessly focused execution by our team. The team was asked to focus on growth with quality revenues that contribute to the bottom line. We have achieved this milestone without losing sight on growth opportunities and keeping all compliances as well as risk factors under a strict watch,” he added. 

“I believe the opportunity in our country for newer payment and credit disbursement solutions is huge, which gives us quality revenue and attractive profit pools to address. With our focus on growth and keeping a tight vigil on operational risk and compliances, I am very confident that we will soon achieve our next milestone of becoming a free cash flow generating company,” he added.

Disclosure: PayTM founder Vijay Shekhar Sharma is among the distinguished founder-investors of ThePrint.

(Edited by Geethalakshmi Ramanathan)

Also Read: Did Covid do what demonetisation couldn’t? Usher in ‘digital India’ & cashless economy


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