One97 Communications commerce turns operationally profitable: Analyst

Financial services firm One97 Communications' commerce vertical has turned profitable at the operational level, an analyst said after the company's earning call.

One97 Communications, which owns the Paytm brand, has set a target to post operating profit by September 2023.

"In the commerce business, the company makes sure that cash back incentives are not more than margins. This business has also turned profitable at the operating level," ICICI Securities analyst Kunal Shah said in the email summarising takeaways from Paytm's earnings call.

Commerce and Cloud Services offerings of Paytm primarily include advertising, ticketing and deal vouchers.

Paytm has reported 55 per cent year-on-year growth in Commerce and Cloud revenues at Rs 377 crore, with commerce revenue increasing 49 per cent y-o-y due to higher ticketing sales, while Cloud revenues were up 58 per cent as advertising revenues started recovering and credit card revenues continue to scale.

"The change in promotional and cashback incentive expenses accounting will lead to high payment processing charges as it is a material number. However, the company will continue to increase its net payment margin," Shah said.

In the earnings call key takeaways note, Shah said that "the company will continue to trim businesses on which it is not making payment margin".

The company has reported a widening of consolidated loss to Rs 593.9 crore in the second quarter ended September 30, 2022

It had posted a loss of Rs 481 crore in the same period a year ago, Paytm said in its regulatory filing.

Paytm's consolidated revenue from operations increased by about 76 per cent to Rs 1,914 crore during the reported quarter from Rs 1,086.4 crore in the September 2021 quarter.

Paytm said that its revenue from payment services to consumers increased by 55 per cent to Rs 549 crore on a year-over-year basis while payment services to merchants were up by 56 per cent to Rs 624 crore on a y-o-y basis.

The company said that Paytm's net payment margin (calculated as payments revenues plus other operating revenues, less payment processing cost) increased multifold to Rs 443 crore on a year-on-year basis on account of improved monetisation and continued focus on reduction in payment processing charges.

Its revenue from the financial services business surged 293 per cent to Rs 349 crore on a year-on-year basis and now accounts for 18 per cent of the total revenue, compared to 8 per cent in September 2021 quarter.

"In the second quarter of FY23, Paytm disbursed 9.2 million loans, up 224 per cent YoY amounting to Rs 7,313 crore," the company said.

The average monthly transacting users (MTU) grew 39 per cent year-on-year to 7.97 crore while the merchant base has increased to 2.95 crore, the company said.