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    One 97

    PAYTM
    Financial Services·22 Jul 2025
    Management Summary

    One 97 reported a strong Q1 FY26, achieving a 60% contribution margin and positive 4% EBITDA margin, driven by significant cost efficiencies and robust growth in its core payment and merchant lending businesses. The company demonstrated pricing power in its POS segment and is strategically focusing on high-margin revenue streams, with expectations for continued EBITDA margin expansion. While personal loan recovery remains a few quarters away due to regulatory factors, management expressed confidence in the long-term profitability of its diversified financial services offerings.

    Highlights

    5

    • Contribution margin for the quarter was 60%, a significant improvement from 50% in the same quarter last year.

    • EBITDA margin reached 4% in Q1 FY26, with management expecting significant improvements by year-end.

    • Indirect expenses were reduced by 30-35% from their peaks, indicating strong cost efficiency.

    • The core payment services business achieved breakeven and is projected to become a 'large profit from payment' driver.

    • POS market share increased, and the company successfully implemented price hikes from Rs 100 to Rs 129, demonstrating pricing power.

    Concerns

    3

    • AUM (partner portfolio) is down over 40% due to a shift away from DLG-based disbursements, impacting new disbursements.

    • Personal loan recovery is still 'linear' and anticipated 'two, three, four quarters away' due to regulatory overhang on small-ticket loans (<Rs 50,000).

    • Marketing services revenue is down sequentially, attributed to seasonality and a strategic focus on payments retention over immediate monetization of new/light users.

    What Changed1

    vs Q2 FY26

    Risks discussed3 → 4 (+1)

    Key financials

    Single quarter

    06 metrics
    1. 01Contribution Margin60%+20%YoY
    2. 02EBITDA Margin4%
    3. 03Financial Services Revenue₹561 Cr
    4. 04Partner AUM Decline-40%
    5. 05Indirect Expenses Reduction-30%

    Guidance & targets

    7
    CategoryTargetPriority
    Margin
    Contribution Margin
    high 50s
    		High
    Profitability
    EBITDA Margin
    15% to 20%
    		High
    Profitability
    EBITDA Margin
    significant improvements
    		High
    Revenue
    Revenue Growth
    at least 28-31% or higher
    		High
    Expenses
    Indirect Expenses Growth
    not grow anywhere close to revenue growth levels, not even half
    		High
    Market Opportunity
    Card Acceptance
    more card acceptance
    		Medium
    Product Launch
    Personal Loan Recovery
    two, three, four quarters away
    		Medium

    EBITDA Margin Trajectory

    by end of financial year
    Current4%
    TargetSignificant improvements

    Why it matters

    To track the company's progress towards its profitability targets and the effectiveness of its cost efficiency measures.

    But we do see significant improvements in EBITDA margin between now and the end of the year. We're currently at about 4 percent, but that is like 4 percent just in the first quarter that you have hit profitability. So you can imagine that there's a lot of upside there.

    How to verify

    key_financials.metrics[label='EBITDA Margin']

    Risks & concerns

    4
    RiskSeverity

    Regulatory overhang on small-ticket loans

    The 'small credit issue... less than Rs 50,000 credit' is currently 'overhanging' the return of BNPL and personal credit products. — Management acknowledged

    medium

    Impact of DLG strategy shift on financial services revenue

    AUM is down over 40% and new DLG disbursements are significantly lower, which could impact future financial services revenue, though management emphasizes fee-based income. — Management acknowledged

    medium

    Seasonality/volatility in marketing services revenue

    Marketing services revenue is down sequentially due to seasonality and a strategic focus on payments retention over immediate monetization of new/light users. — Management acknowledged

    low

    Competition in POS market

    Management acknowledges 'seven more players coming in this market' but expresses confidence in their product differentiation and pricing power. — Management downplayed

    low

    Q&A highlights

    8

    “I've been on the board for about two and a half, three years, and there was never the intention that this should be a permanent thing. We wanted one executive director on the board, so I did a term, and now our General Counsel is being nominated for this. On a personal level, I've been very much looking forward over the last two or three years to drive some business priorities for the company, but quite frankly, simply didn't have the bandwidth with everything else that was going on.”

    Clarifies a significant leadership change, indicating a strategic shift to optimize executive bandwidth for core business initiatives and enhance compliance with a new General Counsel.

    asked by Mr. Piran Engineer

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Shift in Lending Business and AUM Impact

    One 97 has proactively shifted its lending strategy, leading to a significant reduction in partner AUM by over 40% as existing lenders opted to forego DLG-based math. This change resulted in new disbursements under DLG being significantly lower. Despite this, both personal and merchant loans demonstrated growth in revenue and disbursals last quarter, with the mix remaining consistent. The company emphasizes its role as a fee-based income distributor, not an owner of the loan book.

    02

    Robust Payment Business Profitability and Expansion

    The core payment services business has achieved breakeven and is now considered profitable, excluding UPI MDR. This segment, encompassing subscriptions and interchange MDR, is expected to become a 'large profit from payment' driver. The company's full-stack ownership of hardware and software, including card-acquiring machines and QR codes supporting RuPay credit cards, provides a competitive edge. They are actively deploying 'roughly a million plus' POS machines, including advanced card soundboxes, and expanding into enterprise clients.

    03

    Strong Margin Expansion and Cost Efficiency

    The company reported a 60% contribution margin for the quarter, a substantial increase from 50% in the prior year. Indirect expenses have been reduced by 30-35% from their peak levels, reflecting significant cost efficiency gains. Management guided for future contribution margins in the 'high 50s' and anticipates 'significant improvements' in EBITDA margin from the current 4% by the end of the financial year, driven by revenue growth (31% like-for-like, 28% headline) outpacing indirect expense growth.

    04

    POS Market Leadership and Pricing Power

    One 97 has maintained or increased its POS market share, exceeding the 78% previously reported by RBI for PPPL. The company successfully implemented price increases, raising charges from Rs 100 to Rs 129, demonstrating 'reverse elasticity' due to the superior quality and robustness of its products compared to competitors. This pricing power is attributed to its differentiated full-stack offering, including proprietary hardware, software, and strong bank relationships.

    05

    Leadership Transition and Strategic Focus

    Mr. Madhur Deora is transitioning from his board role to dedicate his bandwidth to driving key business initiatives, with a General Counsel being nominated to enhance compliance. This move aligns with the company's intensified focus on core merchant payments, which is considered the primary growth area. Merchant lending continues to be a strong performer, while the recovery of personal loans and BNPL products is anticipated in 'two, three, four quarters' pending resolution of regulatory issues related to small-ticket loans (<Rs 50,000).

    06

    Future Growth Drivers and Innovation

    The company sees 4-5x growth potential remaining in the payment sector, driven by UPI expansion, merchant base expansion, and online merchant farming. It is also exploring non-linear growth opportunities in consumer products like BNPL and wallet, with some initiatives in pilot stages. Innovation in EMI financing, leveraging multiple subvention parties and offering card benefits to small merchants, is a key differentiator. The company is also focused on integrating AI across all customer products and internal processes.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.