Paytm CEO Vijay Shekhar Sharma says ‘the worst is behind us’ after Q4 results

Bengaluru: Paytm founder and CEO Vijay Shekhar Sharma told shareholders in a post-earnings call on Wednesday that the worst is behind the company after One97 Communications, its parent firm, reported lower quarterly revenue and a bigger loss on Wednesday.

"We learned a lot of our lessons to become better and resilient. We also resolved to be fully compliant according to the regulators expectations in letter and spirit," Sharma said in the earnings call. 

Earlier this year the RBI directed Paytm Payments Bank Ltd to halt new credit and deposit operations, top-ups and fund transfers, among other banking activities. The action followed a comprehensive audit by external auditors, which uncovered consistent non-compliance and supervisory concerns at the bank.

As a result of these sanctions, February and March were "uncomfortably bad" and filled with lessons for "long term sustainability and growth of the company," Sharma said. 

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The company reported a drop in revenue to ₹2,399 crore in Q4 from ₹2,465 crore a year earlier. Losses widened to ₹551 crore in a quarter from ₹168 crore a year earlier, largely due to an impairment of ₹227 crore on the company's investment in Paytm Payments Bank Ltd, in which it holds 49%. Shares of Paytm gained nearly 5% to closed at ₹369 on Wednesday.

Fewer active merchants

The company's active device base on the merchants side decreased by about 10 lakh owing to higher attribution in these months and no new additions from February. 

Subscription revenue was also affected by lower new-merchant addition and a temporary rental waiver to ring-fence certain cohorts of merchants, the company said in a statement.

The active rate and per-device subscription revenue were also hit. In Q4, merchant subscription revenue was around ₹90 per device per month. The company expects it to bottom out around ₹80 in Q1 FY25 and approach ₹100 by Q4 FY25.

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The company's indirect expenses also decreased 9% from the previous quarter on account of lower employee costs and a temporary reduction in marketing costs as a result of stopping direct user onboarding since February. However, it expects to increase marketing spends in the subsequent quarters to acquire new customers. "We do expect our marketing cost to be higher in Q1 than in Q4, which was abnormally low," Deora said.

The company has started acquiring new merchants and is also focusing on activating inactive merchants, Paytm's CFO Madhur Deora said in the call.

In March, Paytm received approval from the National Payments Council of India (NPCI) to operate as a third-party UPI app, allowing it to function like its competitors Google Pay and PhonePe. It has partnered with Axis Bank, HDFC Bank, State Bank of India and Yes Bank for this.

Top-level exits amid restructuring 

Paytm is also in the midst of a restructuring and has seen several top-level exits and layoffs in recent months. "There is an opportunity for us to create a much leaner organisation in line with some of the revenue and profitability impact that we have had... We're very conscious about the fact that we need to relook at every cost… our largest indirect cost is of course people," Deora said.

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The company expects further reductions in other employee costs and anticipates annualised people cost savings of ₹400-500 crore. Deora explained that this "takes a little bit of time to come through fully in the financial numbers", which is why the company has not yet seen all of these gains in Q1.

Paytm expects to see the full financial impact of the disruptions in Q4 in the current quarter. It has forecastQ1 revenue at ₹1,500-1,600 crore and is confident of "seeing meaningful improvement starting from Q2 FY 2025" from restarting certain paused products and achieving steady growth in operating metrics.