Paytm’s revenue surge gives it more operating leverage: CFOOne97 Communications Ltd., the owner of the Paytm brand that last week reported a wider quarterly net loss, said increasing revenue and narrowing operating loss give it more room to continue investing in the business.
Chief Financial Officer Madhur Deora said the digital payments and eCommerce company will continue to work towards reducing its operating loss—or loss before interest, taxes, depreciation, and amortization, also called EBITDA loss—as well as improve contribution margins and revenue from operations. The contribution margin is a company’s revenue minus variable costs.
Deora said the company’s revenue from operations rose 89% from a year earlier in the third quarter, while contribution margin grew by nearly Rs 400 crore and ebitda loss excluding cost towards employee stock ownership plans narrowed by about Rs 100 crore.
“So, we are on the right track with respect to making sure that we’re generating a huge amount of revenue growth. All three metrics that matter are pointing in the right direction,” Deora said during an interaction with ET on Monday. “Of course, costs have increased, but there is a huge amount of operating leverage, from our revenue increase and Ebitda losses going down. So, the fact that we can continue to invest in our business while reducing our losses is very encouraging.”
On Friday, the company that listed on stock exchanges last November reported consolidated third-quarter income of Rs 1,533 crore, of which Rs 1,456 crore was revenue generated from operations. This was 35% higher sequentially. Total costs also increased to Rs 2,317 crore for the last quarter, 71% higher from a year earlier. Employee cost at Rs 831.3 crore accounted for a big share of the overall expenses.
Consolidated loss widened to Rs 778.5 crore from Rs 474 crore a year earlier.
For the quarter, Paytm reported an ebitda loss of Rs 393 crore, which was narrower than Rs 488 crore a year earlier. However, including ESOP costs, the operating loss widened to Rs 782.3 crore.
“Ebitda losses did go up if you count the ESOP costs. But that has a significant non-cash charge on account of ESOP. The ESOP cost is Rs 389 crore,” the CFO said. “Although our employee costs went up by 49% year-on-year, our revenues also grew 89% year-on-year.
And ebitda is widely understood as the best proxy for cash operating profit. So, that’s why we highlight that number,” Deora said, referring to rising expenses at Paytm. “ESOP charge does include all the ESOP sub-grants made in the October-December 2021 quarter and also ESOP grants made prior to that.”
On higher marketing costs, he said a combination of the festive season and the company’s sponsorship of cricket matches was the reason. “And, typically in India, the third and fourth quarters tend to be high cricket seasons, and obviously there’s some IPL in Q1 as well.”
Accelerating revenue growth
Deora said the company’s revenue grew 62% year-on-year in the first quarter of the ongoing fiscal year, 64% in the second and 89% in the third.
“This is in combination with increased contribution margin and not one-off things that are happening. And we expect continued revenue growth and increase in contribution margin as well as expect indirect expenses to revenues to go down,” he said. “And now we have much more operating leverage in the business to bring down ebitda losses in absolute terms.”
On Monday, Goldman Sachs upgraded the sentiment on Paytm to “buy” from “neutral”, citing the December quarter results. The brokerage firm’s bull case scenario for Paytm suggested an upside of 119% in its stock price and a 14% downside during a bear cycle.
On Monday, Paytm shares rose 0.44% to Rs 957.40 on the BSE while the benchmark Sensex ended the day 1.28% lower at 57,621.19 points. Paytm is currently trading less than half its IPO price of Rs 2,150.
“We did notice after our listing that there’s a communication gap and that we could explain to our investors better. We are changing that with successive earning releases and trying to explain our business model further,” Deora said.
Source: https://retail.economictimes.indiatimes.com/news/e-commerce/e-tailing/paytms-revenue-surge-gives-it-more-operating-leverage-cfo/89419038