Our Founder and CEO Vijay Shekhar Sharma said in his letter to shareholders that our milestone of EBITDA before ESOP cost profitability, achieved in Q3 FY2023, was made possible due to the relentlessly focused execution by our team. He added 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 said.

Paytm has been witnessing sustained revenue growth with better operating leverage leading to improved profitability. Our revenue from operations increased 2.5X from Mar-21 to ₹2,062 Cr (no UPI incentive recorded this quarter), a growth of 42% YoY and 8% QoQ. In Q3 FY 2023, our EBITDA before ESOP cost was ₹31 Cr as compared to (₹393 Cr) in Q3 FY 2022 and (₹166 Cr) in Q2 FY 2023. EBITDA before ESOP cost margin improved to 2% of revenues in Q3 FY 2023 from (27%) of revenues in Q3 FY 2022 and (9%) of revenues in Q2 FY 2023.

This was driven mainly by two factors:

A consistent improvement in contribution margins to 51% of revenues in Dec-22 from 21% in Mar-21
Improved operating leverage with indirect expenses as a percentage of revenues decreasing to 49% in Dec-22 from 73% in Mar-21

The 131% growth in our contribution margin to ₹1,048 Cr in Q3 FY 2023 is driven by improvement in payments profitability, and growth of high-margin businesses, such as loan distribution.

We are seeing continued growth in revenue from Payment Services with reported revenue for Q3 FY 2023 growing by a robust 21% YoY to ₹1,197 Cr. Payments business generated ₹459 Cr of Net Payments Margin (calculated as total payments revenue less payment processing charges).

As per notification received from the Government of India on January 11, 2023, our management estimates that for Q1-Q3 FY 2023, we will receive ₹130 Cr of UPI incentive in Q4 FY 2023. The estimate is based on internal data, subject to confirmation from NPCI/acquirer banks.

Our revenue from ‘Financial Services and Others’ grew 257% YoY to ₹446 Cr and accounts for 22% of total revenues, up from 9% in Q3 FY 2022. This has also helped in the expansion of contribution profit, given the higher margin nature of this business.

Indirect Expenses (excluding ESOP cost) have remained flat over the past three quarters and were ₹1,016 Cr in the quarter, growing 20% YoY. Our operating leverage is demonstrated by a reduction in indirect expenses as a percentage of revenues, down to 49% in Q3 FY 2023 from 58% in Q3 FY 2022.

Cost of building the platform (defined as employee cost excluding cost of sales staff), was ₹406 Cr, increasing 1% QoQ. Going forward, these costs can grow at a 10% – 15% YoY at the current base, unless we enter a new area of business
Cost of expanding the platform, which is defined as marketing costs and sales employee cost, stood at ₹313 Cr, increasing 1% QoQ. We believe we will improve profitability despite investing for future growth
Software, Cloud, and Data Center costs were ₹171 Cr, up 31% YoY and flat QoQ. These costs should decrease as % of revenue over time
In Q3 FY 2023, our Other Indirect costs at ₹126 Cr, up 17% YoY and flat QoQ. These costs should decrease as % of revenue over time

We continue to make investments in areas where we see attractive growth and monetization opportunities, such as in marketing for user acquisition, and sales team to increase merchant base and subscription services.