One 97 Communications (Paytm) : India

Equity Research INDIA
February 18, 2022

BSE Sensex: 57892
One 97 Communications (Paytm) BUY
ICICI Securities Limited
is the author and
distributor of this report
Optimising and monetising user funnel to
drive customer lifetime value Rs833
Initiating coverage One 97 Communications’ (OCL or Paytm used interchangeably in the report) two-
sided digital ecosystem of 64.4mn average monthly transacting users (MTUs) (as at
Financials Dec’21) from >350mn consumer base and over 24.9mn merchants is core to its unit
economics. Estimating that it currently generates revenue of Rs350-375 per MTU
and Rs1.0k-1.1k per merchant and incurs direct cost (of acquisition and
Target price: Rs1,352
transaction) of Rs250-275 per MTU and Rs750-775 per merchant, we derive
customer lifetime value of Rs2k per MTU and Rs29.6k per merchant. Superimposing
Shareholding pattern
Sep Dec this on FY24E estimated MTU and merchant base and adjusting further for fixed
’21 ’21 cost, net cash and value of associates/subsidiaries, we arrive at Paytm’s intrinsic
Promoters 0.0 0.0
Institutional
business value of Rs940bn (Rs1,352 per share). We initiate coverage on the stock
investors 11.2 10.4 with BUY rating. Key risks being below expected monetisation through financial
MFs and others 0.8 1.1
FI/Banks 0.0 0.0
services business and unfavourable regulatory outcomes.
FIIs
Others
10.4
88.8
9.3
89.6
Paytm calls for evaluation and assessment quite differently and distinctly,
Source: NSE especially given: 1) Management’s high growth aspirations calling for significant
investments and cash burn. 2) Rapidly evolving business model (proven leadership
Price chart in payments but monetising it through financial services still at a nascent stage. 3)
2000 Highly competitive landscape with low switching cost and leading players with
deep pockets getting aggressive. 4) Regulatory uncertainties exist, some
1500
conducive and few unfavourable outcomes.
(Rs)
1000  First and foremost, let’s pay heed to some realities and certainties…: Paytm has
500 built sizeable two-sided digital ecosystem with proven leadership in payments.
Spending >US$1.1bn on marketing/promotions since FY15, it has amassed a sizable
0
base of 64.4mn MTUs as on Dec’21 (equivalent to more than 12% of smartphone
Jan-22
Feb-22
Nov-21
Dec-21
users) and 24.4mn merchants (>half of merchants with access to internet). It now
commands >40% market share in mobile payment, >25% market share (estimated) in
P2Mdigital transactions, 28-30% market share (estimated) in UPI P2M, >20% share
as UPI beneficiary bank and >50% share in P2M wallet transactions.
 …and also, be mindful of challenges it needs to face and emerge stronger: 1)
Paytm operates in a highly competitive landscape with low entry barriers and low cost
of switching between offerings. Many leading domestic and international groups, with
deep pockets, are getting aggressive in this space. 2) Also, scale in margin-dilutive
payments business has come at the cost of profitability (generated cumulative
operating revenue of Rs140bn since FY14, incurring similar accumulated loss of
>Rs130bn). 3) Monetisation of well-fragmented financial services market is still at a
nascent stage. With rising penetration, take rates may come off and credit risk curve
may edge a tad higher. 4) Regulatory uncertainties with some conducive initiatives
Research Analysts: and a few unfavourable outcomes including revision in charges on payment
Kunal Shah instruments, vigilance on digital lending etc.
kunal.shah@icicisecurities.com Market Cap Rs540bn/US$7.2bn Year to Mar (Rs mn) FY21 FY22E FY24E FY26E
+91 22 6807 7572
Bloomberg PAYTM IN Revenue from operations 28,024 52,168 97,497 153,193
Chintan Shah
chintan.shah@icicisecurities.com Shares Outstanding (mn) 648.5 Contribution Profit 3,625 15,702 38,953 70,729
+91 22 6807 7658 52-week Range (Rs) 2,150/833 - Contribution margin (%) 12.9% 30.1% 40.0% 46.2%
Vishal Singh Free Float (%) 100.0 EBITDA -17,673 -25,045 -24,050 -1,768
Vishal.Singh1@icicisecurities.com
FII (%) 9.3 - EBITDA margin (%) -63.1% -48.0% -24.7% -1.2%
+91 22 6807 7230
Daily Volume (US$/'000) NA PAT -17,010 -25,505 -24,861 -4,158
Absolute Return 3m (%) (59.0) Diluted EPS (Rs) -28.1 -36.6 -35.7 -6.0
Absolute Return 12m (%) NA GMV (Rs bn) 4,033 8,925 17,908 30,725
Sensex Return 3m (%) (3.0) Price / Sales (x) 17.9 11.1 5.9 3.8
Sensex Return 12m (%) 12.2 Price / Book (x) 7.7 4.4 5.3 5.2
Please refer to important disclosures at the end of this report
One 97 Communications Limited, February 18, 2022 ICICI Securities
 TAM signifies immense growth potential reinforcing management’s vision…:
P2M digital payments, having grown at >30% CAGR to Rs22trn (US$228bn) in
FY21, has the potential to grow six-fold to >Rs130trn (US$1.8trn) by FY26E. Online
transacting user base is estimated to grow three-fold to 700-750mn by FY26; travel
ticketing will reach US$60bn, entertainment ticketing to US$3.5bn, online gaming
will be as huge as US$12-13bn and online advertising spend will cross US$11bn
mark by FY26E. BNPL disbursals are anticipated to grow 15x to >US$50bn and
digital lending market being <1% of the TAM (Target Addressable Market) is
expected to grow exponentially.
 …so then, how does revenue stack up over medium term: Monthly transacting
user base (MTUs) of Paytm is likely to double over FY22-26E to >120mn. Paytm’s
merchant GMV is forecast to grow at 36% CAGR over FY22-26E to reach Rs30trn
(>23% of P2M value) and within this, MDR linked GMV is estimated to grow at
>25%. As compared to a net take rate drag of 30bps in payment business in FY19,
it can be accretive to the extent of 8bps by FY26E.
We expect commerce GMV to grow at >30% over FY22-26E and commerce
revenue with decline in take rates to grow at 27%. Cloud business, particularly PAI
cloud and advertising, will too ramp up at 34% CAGR over FY22-26E.
We estimate 18-19mn consumers (15% of MTUs), and 1.2mn merchants (>10% of
merchants with Paytm devices and >3% of total merchant base) to avail lending
products through Paytm platform by FY26E. This translates to disbursements of
Rs614bn by FY26E (including Rs425bn of consumer loans and Rs189bn of
merchant loans). We forecast financial services revenue to grow at a CAGR of 57%
over FY22E-26E, comprising 18% operating revenue (vs <5%/10% in
FY21/FY22E).
 Some visibility on positive EBITDA margin post FY26E: Contribution margin has
crossed the hurdle of being in negative zone in FY19 to a positive contribution of
13% / 30% in FY21 / FY22E. It now has the potential to further improve to 40%/46%
by FY24E/FY26E. Aided by this contribution margin, there is some visibility of
EBITDA getting into positive territory post FY26E. Annual non-cash ESOP charges
of Rs10-18bn over FY22-26E will drag reported EBITDA. Adjusted EBITDA margin
(excluding non-cash ESOP charges) will turn positive by FY26E.
 Positive catalysts that can swing earnings delta: 1) Ability to monetise UPI that
constitutes half of Paytm’s GMV can swing earnings, as presently, the revenue per
GMV is ~55-60bps and EBITDA loss is ~20-30bps. 2) With market share cap for
leaders in UPI transactions, Paytm will eventually benefit and enhance engagement
or retention of customers on its platform. 3) Wallet interoperability will benefit the
category leader in the form of interchange; Paytm may end up earnings interchange
fee to the tune of 30-50bps. 4) Transition to small finance bank – an optionality.
 Consumer and merchant ecosystem is core to its business model and unit
economics: Based on detailed revenue and cost component, we estimate it
currently generates revenue of Rs350-375 per MTU and Rs1.0k -1.1k per merchant
and incurs direct cost (of acquisition and transaction) of Rs250-275 per MTU and
Rs750-775 per merchant. We are fully cognisant that two-sided ecosystem is
interdependent and one bucket economics can be compromised to monetise the
other. Anticipating enriched unit economics following positive payment business
contribution and scale up of financial services, we arrive at lifetime customer value
of Rs2k per MTU and Rs29.6k per merchant. Superimposing that on MTU base of
92mn and merchant base of 33mn by FY24E and post the adjustment of other costs,
we forecast Paytm’s business value of Rs940bn. Considering the cash on balance
sheet and value of associate/subsidiary entities, we arrive at Paytm’s intrinsic
business value of Rs940bn (Rs1,352 per share). This is equivalent to it being valued
at ~9.5x FY24E operating revenue. Initiate coverage on the stock with ‘BUY’ rating.
2
TABLE OF CONTENT
I. Story in charts ..................................................................................................................... 4

II. Paytm calls for evaluation and assessment quite differently and distinctly .............. 12
 Let’s pay heed to some realities and certainties .......................................................... 13
 Be mindful of challenges it needs to face and emerge stronger .................................. 14
 Assessing Paytm’s market positioning ......................................................................... 17
 How does revenues stack up in the medium term ....................................................... 18
 Some visibility on positive EBITDA post FY26E ........................................................... 19
 Positive catalysts that can swing earnings delta .......................................................... 20
III. Valuations .......................................................................................................................... 21
 Consumer and merchant ecosystem core to its business model and unit economic .. 21
 Customer lifetime value derived MTUs/merchants to assess business valuation........ 21
 Sensitivity analysis on key operating parameters ........................................................ 22
IV. Sizeable two-sided digital ecosystem ............................................................................. 26
 Payment Services: Market leader but not margin accretive ......................................... 28
o Customer/merchant acquisition engine with comprehensive product suite ..........28
o Potential target addressable market to grow at ~6x by FY26E .............................28
o Presently derives two-thirds of revenue from payments business.........................33
o MTUs to double; merchants with devices to quadruple ........................................33
 Commerce and cloud services: An engagement engine .............................................. 37
o Targeted outreach to engage merchants as well as consumers 37
o Encouraging TAM potential; Paytm just a fringe player .........................................37
o As an engagement tool, Paytm is just an additional player ...................................39
 Lending and financial services: Scale up key to profitability ........................................ 41
o Monetise transactional customers and merchants.................................................41
o Digital lending - significant potential, well fragmented, competitive, too ................41
o Initial progress of financial services is encouraging ...............................................46
o Scale will be key to profitability ..............................................................................48
 Contributing margin to edge higher; visibility on positive EBITDA post FY26E ........... 52
o Levers available to plug more efficiency in payment processing charges .............52
o Growth and engagement levels contingent on marketing and promotional expenses
...............................................................................................................................53
o Employee cost; ESOP a huge drag .......................................................................54
o Contribution margin to improve to 40%/46% by FY25E/FY26E ............................55
o Some visibility on positive EBITDA margin post FY26E ........................................56
V. Revenue drivers ................................................................................................................ 57
VI. Related-party transactions ............................................................................................... 61
VII. About the company ........................................................................................................... 63
VIII. Super-App comparison .................................................................................................... 65
Financial Summary ................................................................................................................... 79
Index of Tables and Charts ...................................................................................................... 82
3
I. Story in charts
Table 1: Paytm has created sizeable leading digital ecosystem for consumers and merchants
Key Business Snapshot
Payment Service Cloud and Commerce Financial Services
Rs6.0trn GMV in 9MFY22 Rs9.0bn commerce GMV in Q1FY22 8.7mn no. of loans and Rs41bn loans disbursed in 9MFY22
* ATUs equivalent * UPI P2M market 5-6% GMV take rate
to 50% mobile share estimated : 25-
payment and 25% 28%
of smartphone
users * 65-70% market
share in wallet
* 40% market share payment transaction
in mobile payment volume
transaction volume
* ~8% market share

in overall UPI
transactions (value)
* >20% market
share as UPI
beneficiary bank
(value)
Customer Merchants Customer Merchants Banking services Lending Other financial
services
>350mn 24.9mn merchants Travel ticketing: Increase in 65.4mn savings Paytm postpaid Insurance: 11.4mn
customers (wallet Domestic, demand through account (BNPL): Rs12bn unique insurance
as well) international airlines, targeted outreach BNPL loans customers
>2,000 bus to offer service Fixed deposits: disbursed in
operators integrated such as ticketing, Rs20.2bn Q3FY22
commerce, deals,
loyalty services etc.
Monthly Soundbox or POS Entertainment 424 advertisers Paytm payment Personal loans: Attachment
transacting users devices: 2mn ticketing: run campaign bank: Largest UPI Rs5bn disbursed in products: 31.6mn
(MTUs): 64.4mn devices Partnership with beneficiary bank Q3FY22 attachment products
(Dec'21) >1,200 screens and New ad format with market share of and insurance
Annual offers 2,200 events constitutes >40% of >15% in transaction policies sold
transacting users in Mar-21 revenues volume
(ATUs): 120mn
(Jun'21)
10,367 total Paytm QR code Mini-Apps: 455 Software and Lowest technical Credit cards: Co- Wealth: Rs69bn
transactions in listed apps cloud services decline rate of branded card in investment in mutual
9MFY22 0.01% as a remitter partnership with SBI, fund, gold and stock
Visitor base of bank while other Citibank, HDFC broking as on Jun-
8.7mn MTUs banks had a Bank 21
weighted average
rate of 1.06%
UPI handles: Paytm all-in-one Paytm First Merchant advance: >1.3mn consumers
155mn payment gateway Games: 28mn Rs5bn disbursed in for direct mutual
UPI: 926mn infrastructure registered users Q3FY22 fund investments
transactions in Dec-
21 (Paytm Bank is
the biggest
beneficiary)
Business Paytm app 208k equity trading
accounts
74mn investors use
digital gold service
Source: Company data, I-Sec Research
4
TAM signifies immense potential reinforcing management’s vision
Chart 1: P2M digital payment has potential to grow Chart 2: UPI, along with cards, will continue to
six-fold by FY26E lead the growth
UPI - P2M Credit card s
Debit card s Pre paid instru me nts - P 2M 250% FY18-FY22 CAGR FY223-FY26E CAGR
Tota l merchan t value break-up 211%
140 131
200%
120 106
100
150%
78
80
Rs trn
60 53 100%
35 58%
40
19 22 50% 34% 39%
11 15 20% 19% 14% 13% 15%
20 7 9%
- 0%
UPI - P2M Credit Debit cards Prepaid Overall
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
FY25E
FY26E
cards instruments
- P2M
Source: RBI, I-Sec research Source: RBI, I-Sec research
Chart 3: India’s BNPL market has rapidly grown to reach US$3-3.5bn in disbursals in FY21 and is on track
to grow to US$45-50bn by FY26 driven by user growth
BNPL market (deferred payments+shopping EMI) User Base in India
45-50
Loan Disbursals/GMV in USD bn Mn. Unique users for each mode
80-100
BNPL user base 70-75

to surpass cards
user base
CAGR
>80%
30-35
10-15
3.3
<0.5 FY21 FY26
FY18 FY21 FY22P FY23P FY24P FY25P FY26P Credit Card Users BNPL Users
Source: Industry data, I-Sec Research

The BNPL disbursals mentioned here refer to disbursals only from digital-first platforms including deferred payment, shopping EMI solutions. BNPL
disburals from legacy lenders are excluded
Table 2: Penetration levels low in India compared to other countries

US Australia India UK Germany
Internet users 290mn 22mn 550mn 55mn 71mn
(% of population) (78%) (88%) (40%) (80%) (88%)
Online shoppers 200mn 12mn 100mn 40mn 47mn
Total retail US$3.6trn US$250bn US$820bn US$500bn US$550bn
Online retail US$450bn US$20bn US$30bn US$90bn US$80bn
(% of total retail) (13%) (8%) (4%) (18%) (15%)
HH debt to GDP 80% 120% 16% 94% 53%
CC penetration 75% 75% 3% 55% 35%
Source: Industry data, I-Sec research
5
Customer / merchant base scale up to drive revenue growth in
medium term
Chart 4: Average MTU as well as merchant base to grow >1.5-2.0x over the next
5 years
No.of merchants (mn) Average MTU (mn)
140.0
122.5
120.0 107.4
92.0
100.0
76.3
80.0
(mn)
60.6
60.0 45.1
39.7
34.4
40.0
36.0 37.8
20.0 30.3 33.4
26.4
11.2 16.3 21.1
-
FY19 FY20 FY21 FY22E FY23E FY24E FY25E FY26E
Source: Company data, I-Sec research
Table 3: Medium-term outlook across businesses

CAGR (2019-22E) CAGR (2022-26E)
Key Operating metrics
GMV 57.3% 36.2%
Commerce GMV (FY20-22E) -22.7% 30.8%
Average MTU 20.8% 19.2%
BNPL loan disbursements 67.2%
Personal loan disbursements 49.3%
Merchant loan disbursements 88.1%
Total loan disbursements 68.5%
Revenue from operations
Total Payment and Financial service revenue 33.3% 30.7%
Total Payment revenue 31.4% 26.0%
-Payment to consumer 12.2% 17.1%
-Payment to merchant 61.2% 31.7%
Financial service revenue 52.9% 57.1%
Total Lending business revenue 61.0%
-BNPL revenue 61.9%
-Personal loan revenue 41.2%
-Merchant loan revenue 76.5%
Other Financial service revenue 41.7%
-Insurance service revenue 49.6%
-Wealth management revenue 35.6%
Total Commerce and cloud revenue -7.8% 31.6%
-Commerce revenue -28.1% 26.9%
-Cloud revenue 30.2% 34.1%
Other operating income
Total Revenue from operations 17.3% 30.9%
Expenses
Payment processing charges 8.2% 23.6%
Marketing and promotional expenses -34.0% 24.1%
Employee benefits expense 44.9% 15.0%
- Other Employee expenses 32.4% 21.9%
- ESOP cost 84.7% -0.2%
Software, cloud and data centre expenses 17.1% 11.0%
Other Expenses 0.8% 11.0%
Total Expenses (other than Depr. & Int. exp.) 0.5% 19.0%
6
Chart 5: Operating revenue to grow at >31% CAGR Chart 6: Financial services and payment services
to merchant revenue pie to expand
180 Revenue from operations Revenue from operations break-up
153 100%
160 8% 15% 14%
16% 15% 15% 16%
140 12%
126 80% 9% 9% 9% 8% 8% 7%
120 5% 9% 11% 14%
22% 16% 18%
97 36% 39%
100 60% 40%
4% 40% 40% 40%
(Rs bn)
74 23%
80
40%
60 17% CAGR 52
35%
40 32 33 28 20% 31% 29%
26% 22% 21% 19%
20
0%
- FY20 FY21 FY22E FY23E FY24E FY25E FY26E
FY19
FY20
FY21
FY22E
FY23E
FY24E
FY25E
FY26E
Payment to consumers revenue Payment to merchants revenue
Financial service revenue Commerce service revenue
Cloud service revenue Other operating income
Source: Company data, I-Sec research Source: Company data, I-Sec research
Chart 7: Contribution margin to improve to 40% / 46% by FY24E / FY26E

80 46.2% 60%
40.0% 43.3%
70 35.4%
30.1% 40%
60
50 12.9%
20%
40
-7.2%
30 0%
20 -20%
(Rsbn)
10 4 16 26 39 55 71
- -40%
-10 -20 -2
-60%
-20
-61.8%
-30 -80%
Contribution profit (Rsbn) Contribution profit margin (RHS)
Chart 8: Adjusted EBITDA to turn positive by FY26E; ESOP charges to drag

reported EBITDA
50% 0.5%
0.0%
5%
0.0%
0% 0.0%
-75%
-0.1% 0.0%
-80%
-0.2% -0.5%
0%
-1%
-9%
-10%
-0.4%
-18%
-25%
-29%
-50% -1.0%
-130%
-0.8%
-135%
-42%
-48%
-59%
-63%
-1.5%
-100%
-1.8% -2.0%
EBITDA Margin
-150% -2.5%
EBITDA Margin (excluding ESOP expenses)
EBITDA as % of GMV (RHS)
EBITDA (excluding ESOP expenses) as % of GMV (RHS)
7
Chart 9: Paytm’s market share in merchant GMV to sustain above 20%
Merchant GMV mkt share UPI P2M mkt share Wallets P2M mkt share
80.0%
70.0%
67.9%
60.0%
62.5%
50.0%
55.1%
54.3%
54.0%
52.9%
51.0%
48.8%
40.0%
30.0%
28.0%
20.0%
25.3%
25.0%
23.6%
23.4%
23.1%
22.7%
20.2%
20.0%
20.0%
15.6%
14.2%
18.7%
19.0%
15.0%
10.0% 8.7%
0.0%
Source: Company data, RBI, I-Sec research
Chart 10: Paytm’s merchant UPI GMV is expected Chart 11: We forecast merchant GMV to grow at
to compound at a CAGR of 45% 36% CAGR; take rates to moderate further
UPI Wallet Others 35 0.80%
0.69%
100% 0.70%
30 0.59%
35% 45% 44% 38% 36% 35% 34% 32%
90% 0.60%
25 0.49%
80%
0.40% 0.50%
70% 20 0.37%
6% 0.34% 0.32% 0.40%
60% 9% 7% 0.29%
12% 15
14% 62% 0.30%
59%
(Rs tn)
50% 56% 10
21% 52% 0.20%
40% 48% 57% CAGR
60% 40% 5 0.10%
30% 35% 2 3 4 9 13 18 24 31
- 0.00%
20%
FY19
FY20
FY21
FY22E
FY23E
FY24E
FY25E
FY26E
10% 15%
0% 5%
GMV (Rs tn) Payment take rate on Commerce GMV (RHS)
Chart 12: From a drag of 30bps in payment net take rate, it will be accretive
going forward
1.50% 23.4 25.0
0.98% 19.2
20.0
1.00% 0.75% 14.2
0.48% 15.0
0.50% 0.32% 0.29% 0.26%
0.69% 0.24% 0.22% 10.0
0.59%
0.49%
0.40% 0.37% 0.34% 0.32% 0.29% 5.0
0.00%
0.6 7.1 10.7
-
-0.50%
-5.0
-4.9
-1.00% -6.9 -10.0
Net payment revenue (Rs bn- RHS) Payment take rate
Payment processing charge as % of GMV
8
Chart 13: Payment business revenue to grow at 26%
100 90%
80.1%
90 80%
80 70%
70
60%
60
50%
50 36.5%
(Rsbn) 40%
40
25.0% 25.7%
30%
30 17.6%
20 13.2% 11.4% 20%
10 10%
16 18 20 36 49 61 77 90
- 0%
Payment services revenue Payment services revenue growth (RHS)
Chart 14: Commerce GMV to grow at 31%; Chart 15: Commerce and cloud business will ramp
commerce revenue to register 27% CAGR up at 32% CAGR leading
300 Com merce service estimates for revenue 7% 40.0
5.8% 35.0
250 5.2% 6%
5.0% 5.0% 4.8% 30.0
4.7% 4.6%
5% 25.0
200 24.6
4% 20.0 -8% CAGR 19.5
(Rs bn)
150 14.6
15.0
3% 3.5
(Rsbn)
10.6
100 10.0 4.1 7.6
2% 11.9 11.5
5.0 4.5 8.0 9.8
7.1 6.4
50 2.5 4.4
1% -
142 42 85 127 166 207 248
FY23E
FY19
FY20
FY21
FY22E
FY24E
FY25E
FY26E
- 0%
FY20 FY21 FY22E FY23E FY24E FY25E FY26E
Commerce GMV % Commerce Take rate (RHS) Commerce service revenue Cloud service revenue
Chart 16: Financial services revenue to grow at Chart 17: BNPL and merchant lending to account
57% CAGR constituting 18% of revenues for one-third each
30.0 Financial services revenue Financial service revenue break-up
27.1 100%
14% 12% 10% 9% 8%
25.0 9% 9% 8%
9% 10%
20.2
80%
20.0 21% 22% 28% 31% 34%
60%
14.0
15.0 25%
(Rs bn)
25% 21% 18% 16%

40%
10.0 8.4
32% 32% 34% 35%
4.4 20% 31%
5.0
0.6 0.9 1.3
- 0%
FY22E FY23E FY24E FY25E FY26E
FY22E
FY23E
FY24E
FY25E
FY26E
Q1FY22
Q2FY22
Q3FY22
BNPL Service Instant personal loan service

Merchant loans Insurance services
Wealth management
9
Chart 18: Postpaid adoption assumed at 15% Chart 19: Postpaid revenue to grow at 62% CAGR
16.0% Paytm Postpaid business dynamics 3.0 3.1 400.0 9.4 10
Disbursement CAGR 67%
3.0
14.0% 3.0 350.0 9
2.9 Revenue CAGR 62%
12.0% 2.9 8
2.8 2.9 300.0 6.8
10.0% 2.8 7
2.8 250.0
8.0% 6
2.6
(Rsbn)
2.7 4.5
6.0% 200.0 5
(Rs bn)
4.0% 2.6 4
150.0
12.0%
15.0%
2.7
4.9%
4.2%
3.2%
6.5%
3.1%
9.0%
3.1%
2.8%
6.7%
3.0%
2.0% 2.5 3
100.0
0.0% 2.4 1.4 2
50.0
Q2FY22
Q3FY22
FY22E
FY23E
FY24E
FY25E
FY26E
0.2 1
8.1 42.8 85.0 144.7 229.7 334.1
- 0
FY21E FY22E FY23E FY24E FY25E FY26E
Pen etr atio n in MTU Ser vice ta ke rate
Avg. ticket size ('000) (RHS) BNPL disbursements BNPL revenue (RHS)
Chart 20: Personal lending adoption assumed at Chart 21: Personal lending revenue to grow at 41%
<1% and take rates of 4.8-5.0%
7.0% Personal lending business dynamics 100.0 100.0 5
96.8 Disbursement CAGR 49% 4.4
90.0 Revenue CAGR 41% 5
6.0% 94.0
95.0 80.0 3.6 4
91.2
5.0%
88.6 70.0 4
90.0 2.9
4.0% 86.0 86.0 60.0 3
84.8
(Rsbn)
3.0% 50.0 2.1 3
(Rs bn)
85.0
2.0% 40.0 2
0.8%
0.7%
0.7%
0.6%
0.4%
80.0 30.0 1.1 2

0.1%
0.1%
6.0%
5.7%
5.3%
5.0%
4.8%
1.0%
20.0 1
0.0% 75.0 10.0 0.2 1
3.5 18.2 37.2 54.5 73.2 90.7
Q2FY22
Q3FY22
FY22E
FY23E
FY24E
FY25E
FY26E
- 0
Per son al l oan disbursements Per son al l oan revenue (RHS)
Avg. ticket size ('000) (RHS)
Chart 22: Adoption of merchant cash advances to Chart 23: Merchant lending revenue to grow
grow 10x exponentially
Merchant lending business dynamics 200.0 9.1 10
7.0% 200
153 160
6.0% 146 160.0 8
135 132 139
5.0% 150
119 140.0 6.2 7
4.0% 120.0 6
100
(Rsbn)
3.0% 100.0 5
(Rs bn)
3.9
3.1%
2.0% 50 80.0 4
2.3%
0.1%
0.4%
6.2%
0.8%
1.5%
5.3%
5.0%
4.8%
0.1%
5.8%
1.0% 60.0 3
1.9
0.0% - 40.0 0.9 2
Q2FY22
Q3FY22
0.3
FY22E
FY23E
FY24E
FY25E
FY26E
20.0 1
6.0 15.1 32.3 73.7 125.8 189.3
- 0
Pen etr atio n in total n o. of mercha nts FY21E FY22E FY23E FY24E FY25E FY26E
Ser vice ta ke rate
Merchant loan disbursements Merchant loan revenue (RHS)
Avg. ticket size ('000) (RHS)
Source: Company data, I-Sec research. Source: Company data, I-Sec research
10
Table 4: Non-cash ESOP charges (estimated) to weigh on reported EBITDA (Rs mn)
For ESOPs granted in FY19 230 102
For ESOPs granted in FY20 335 211 94
For ESOPs granted in FY21 918 589 370 164
For ESOPs granted in FY22 8,265 15,949 12,425 7,521 4,015 1,235
For ESOPs granted in FY23 948 1,646 1,146 729 406
For ESOPs granted in FY24 1,090 1,893 1,318 839
For ESOPs granted in FY25 1,254 2,177 1,515
For ESOPs granted in FY26 1,442 2,503
For ESOPs granted in FY27 1,658
Share based payment expense in P&L 9,749 17,799 15,625 11,977 9,680 8,156
Note: ESOP charges estimated on the basis of assumed fair value, allocation across vesting period and ESOPs to be granted in coming years too.
21 mn ESOP granted to Mr. Vijay Shekhar Sharma in FY22 are subject to achievement of certain milestones and to be vested equally in 4
tranches having minimum vesting period of 24 months, 36 months, 48 months and 60 months for each tranche respectively.
Table 5: 45-50% of payment revenues and charges are related to PPB

Related party transactions FY19 FY20 FY21
Paytm Payment Bank (Rs mn)
Income for
Services rendered 9,277 8,752 8,634
As %age of consolidated payment revenues 59% 49% 44%
Reimbursement of expenses incurred on behalf of payment bank 1,466 945 617
Total Income 10,782 9,909 9,388
Expenses for
Payment processing charges 9,183 9,690 9,468
As %age of consolidated processing charges 41% 43% 49%
General expenses 71 1,091 374
Total Expenses 9,254 10,781 9,842
Paytm First Games (Rs mn)
Income for
Services rendered 14 88 204
As %age of consolidated commerce & cloud revenues 0.09% 0.79% 2.94%
Reimbursement of expenses incurred on behalf of payment bank 23 42 238
Total Income 459 130 462
Table 6: 30-35% of revenues and 35-40% of expenses are from related parties
Amount (Rsmn) As a %age of revenue from operations
FY19 FY20 FY21 FY19 FY20 FY21
Income
Rendering of services to related parties 9,291 8,860 8,842 28.8% 27.0% 31.6%
Reimbursement of expenses incurred on behalf of related parties 1,489 987 855 4.6% 3.0% 3.1%
Interest income earned from related parties 39 26 36 0.1% 0.1% 0.1%
Other income earned from related parties - - 122 - - 0.4%
Sale of property, plant & equipment to related parties - 186 1 - 0.6% 0.0%
Gain on Sale of Business 422 - - 1.3% - -
Total income 11,241 10,059 9,856 34.8% 30.7% 35.2%
Expenses
Payment processing charges 9,183 9,690 9,468 28.4% 29.5% 33.8%
General expenses 581 1,884 1,453 1.8% 5.8% 5.2%
Expenses reimbursed to related parties - - 87 - - 0.3%
Total expenses 9,764 11,574 11,008 30.2% 35.3% 39.3%
Net income/expense 1,477 -1,515 -1,152 4.6% -4.6% -4.1%
11
II. Paytm calls for evaluation and assessment

quite differently and distinctly
It becomes tricky to assess One 97 Communications (OCL or Paytm used
interchangeably in the report) from a stock call perspective, especially given:
 Management’s high growth aspirations (mission to get half a billion India’s

population into mainstream economy) calling for significant investments and cash
burn.
 Rapidly evolving business model; it has proven leadership in customer acquisition
payment engine but monetising it through distribution of financial products is still at
a nascent stage.
 Highly competitive landscape with low entry barriers, low switching cost and leading
global and domestic players with deep pockets getting aggressive.
 Regulatory uncertainties exist given digital innovation and digital penetration is
encouraged but at the same time regulators prefer customers’ convenience,
affordability, reasonable charges and data democratisation.
Henceforth, it calls for evaluation and assessment quite differently and distinctly. Also,
we have weighed intrinsic business value derived from unit economics of consumer and
merchant base against the valuation multiples of global benchmarks.
Chart 24: Paytm calls for evaluation and assessment quite differently and
distinctly
12
Let’s pay heed to some realities and certainties
Two-sided digital ecosystem with proven leadership in payments

Management has always set high aspirations following a mission of getting half a billion
India’s population into mainstream economy. To achieve this, it has invested
significantly in building a scalable two-sided (consumers and merchants) digital
ecosystem through customer acquisition payment engine. It has spent more than
Rs86bn (US$1.1bn) on marketing and promotional expenses since FY15 to amass a
sizable base of 64.4mn MTUs (equivalent to more than 12% of smartphone users) and
24.9mn merchants (more than half of merchants with access to internet). It now
commands >40% market share in mobile payment, >25% market share (estimated) in
P2M digital transactions, 28-30% market share (estimated) in UPI P2M, >20% share as
UPI beneficiary bank and >50% share in merchant wallet transactions. The mission is
still half way through and we expect it to invest further in scaling up the franchise.
Monthly transacting user base is expected to double by FY26E (>15% of smart user
base). However, already having penetrated significantly into eligible merchant base, the
endeavour would be engagement outreach through EDC or soundbox devices, cloud
offering, etc. (inching up the proportion from <10% to nearly a quarter of merchant base).
TAM signifies immense growth potential

Management’s vision has been reinforced by huge and rapidly expanding opportunity
pool. India has very distinctive digital infrastructure (UPI as an example) as well as
under-penetrated financial services market. Overall retail digital payment market
(including NEFT, IMPS, UPI, cards, NACH, prepaid instruments, etc) in India has grown
at a CAGR of 27% over FY17-21. Interestingly, P2M digital payments (excluding P2P,
NEFT etc) is estimated to have grown at >30% CAGR to Rs22trn (US$228bn). This, we
believe, has the potential to grow six-fold to >Rs130trn (US$1.8trn) by FY26E. Online
transacting user base is estimated to grow three-fold to 700-750mn by FY26E; travel
ticketing will reach US$60bn, entertainment ticketing to US$3.5bn, online gaming will
be as huge as US$12-13bn and online advertising spend will cross US$11bn mark by
FY26E. BNPL disbursals are anticipated to grow 15x to >US$50bn and digital lending
market being <1% of the TAM is expected to grow exponentially.
Innovation and early mover advantage provide some edge

Paytm is well ahead in the race of digitisation, building a robust full stack technology
suite integrated across the ecosystem with distinct features, high success rates, easy
user interface, and customer convenience. It has an early mover advantage in rolling
out wallet, FASTag, and is ahead of the curve in (skill based) online gaming, too.
Access to voluminous data to cross-sell and up-sell

Paytm has intelligent dump of voluminous transactional data given high frequency
engagement on its ecosystem. It processed 8.5bn merchant transactions and 10.4bn
total transactions in 9MFY22. Analytic use of the same not only helps in designing a
lending product but also for creating underwriting and credit risk models - its key moat,
we believe. This provides plenty of insights into the behavioural trend that many
financiers would look to have. This drives cross-sell and distribution of financial products
in partnership with banks/NBFCs at marginal incremental cost.
13
Be mindful of challenges it needs to face and emerge stronger
Highly competitive landscape with low switching cost; players with

deep pocket getting aggressive
Paytm operates in a market that is characterised by active competition, low entry
barriers and where cost of switching between offerings is low. User has propensity to
prefer lowest cost provider and can use more than one platform. Incrementally, we are
witnessing rising competition in Indian payment and financial product distribution from
leading e-commerce platform (Amazon, Flipkart etc) or telecom companies (Airtel,
MyJio) or fintech companies (Google Pay, PhonePe, Amazon Pay, Whatsapp) or banks.
Many leading domestic and international groups with deep pockets and substantially
larger consumer base are getting to payment space to close the entire loop from
transaction origination to payment checkout options.
Scale coming at the cost of profitability

Achieving this scale in margin-dilutive payments business has come at the cost of
profitability. It has consistently been in an investment and scale up mode that led to
cumulative operating revenue of Rs140bn since FY14 (Rs182bn since FY10),
nonetheless incurring similar accumulated loss of >Rs130bn (Rs148bn since FY10).
Post demon and with digital push by government as well as regulator (UPI launch), it
has spent aggressively on marketing to the extent of Rs70bn during FY17-20. In recent
fund raise document, it has earmarked another Rs43bn for costs associated with
marketing and promotion, product and engineering talent to build technology solution,
expanding sales team, rolling out soundbox and POS device, and strengthen technology
powered payment solutions.
Chart 25: Since FY14, cumulative operating revenue of Rs140bn, nonetheless
incurred accumulated loss of Rs130bn
Cumulative revenue: Rs 182bn
40.0 Cumulative loss: Rs 148bn 32.3 32.8 34.3

30.6 28.0
30.0
20.0
3.4 6.1
10.0 1.2 1.8 2.3 2.3 2.1 -
(Rs bn)
-
-10.0 0.2 0.4 0.6 0.3 0.1
-3.7
-20.0 -9.0
-15.5 -16.0 -17.0 -16.3
-30.0
-40.0 -29.4
-50.0 -42.3
FY10
FY12
FY13
FY14
FY15
FY17
FY18
FY19
FY20
FY11
FY16
FY21
9MFY22
Operating revenues Profit / Loss

14
Chart 26: Spent aggressively on marketing in FY18-20 to the extent of >Rs70bn
40.0 Marketing and promotional expenses
34.1
35.0
30.0
25.0 22.3
20.0
(Rs bn) 14.0
15.0
9.7
10.0
5.3 6.1
5.0
0.3 0.4 -
-
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 9MFY22
Unit economics contingent on scale up of financial services revenue

Excluding financial services revenue (still at a nascent stage), it generates revenue of
Rs350-375 per MTUs and Rs1.0-1.1k per merchant on an average. Against this, it incurs
direct cost in the range of Rs250-275 per MTU and Rs750-775 per merchant. Cost has
been significantly scaled down from >Rs1.0k in FY19 for consumers as well as merchants,
and endeavour is to grow the cost base at a pace relatively slower than the revenue.
Improvement in net unit economics will be contingent on its ability to scale up the financial
services business. Anticipating adoption of lending products amongst >15% MTUs and
>35% merchants with EDC or soundbox device, we forecast financial services to generate
revenue of >Rs100 per MTUs and >Rs200 per merchant.
Monetisation of hugely competitive and well fragmented financial
services still at a nascent stage
Paytm is actively pursuing sourcing and distribution of financial products and has tied
up with 8 banks and NBFCs for the same. Getting access to newer customer segment,
financial product manufacturers are keen to evaluate digital distribution model, and
Paytm, with its user base, alternate data capabilities and customised products, would
be a preferred distributor. Currently, the business dynamics suggests a take rate of 3.2-
3.3% for Paytm Postpaid, 5% for personal loans and merchant lending. However, the
competition is quite evident with active rollout and aggressive plans of scaling up BNPL
and merchant lending by several fintechs, banks, NBFCs etc. In fact, banks and NBFCs
are investing hugely in building digital capabilities. Also, once the initial lucrative layer
of user base is well penetrated by the industry with lending offering, propensity to
compensate digital distributor will reduce across the industry and take rates may come
off. Behavioural information/customer data will be available with financial partners, too.
Going down the risk curve will edge credit risk a tad higher. Managing credit cost will be
key to success and new age digital lending space has not yet experienced cycles.
15
Regulatory uncertainties with some conducive and a few unfavourable
initiatives
The RBI has stated its intent of taking a comprehensive view on aspects related to
charges involved in various channels of digital payments such as credit cards, debit
cards, prepaid payment instruments (cards and wallets), UPI, etc. It has stated there
are both advantages and disadvantages of customers bearing digital payment charges,
but they should be reasonable and should not become a deterrent in the adoption of
digital payments. Also, it will seek feedback on issues related to convenience fee,
surcharge, etc., and the measures required to make digital transactions affordable to
users and economically remunerative to providers. The discussion paper is expected
soon but till then will weigh uncertainty whether it will favour service provider or customer
when it comes to digital payment services.
RBI’s Working Group report on digital lending has recommended prohibiting any
regulated entity (banks, NBFCs etc) from entering into FLDG (first loan default
guarantee) arrangement with unregulated entities (fintechs). This is to ensure that
partner banks and NBFCs that are actual lenders when fintechs distribute these lending
products are actively involved in credit assessment. Also, it states that new digital
lending products and the likes of BNPL should be treated as a part of balance sheet
lending, if not in the nature of operational credit by merchant.
The above recommendations are examples of regulators vigilance on digital lenders to

avoid potential risk build from these platforms. Also, restrictions or disciplined sharing
of customer data as well as transactional flow that resides with fintech platform cannot
be completely ruled out.
Paytm is cognisant of regulatory risks and is subjected to regular review as Paytm

Payments Bank is a regulated entity. It has focused on developing models/products that
align with regulatory requirement. As a distributor of lending products, it has not entered
into FLDG arrangement with any of its partner financial institution nor does it retain any
credit risk on its own balance sheet.
Data, a key moat of Paytm ecosystem, is getting democratised

The latest addition to India’s financial digital infrastructure is ‘Account Aggregator
Network’. This data empowerment platform is expected to revolutionise credit, insurance
and investment by making it a lot more effective and efficient reducing information
asymmetry. Democratising access to data will expand the potential pool of customers
for lenders and fintechs. With access to richer, wider, consented and verified set of data,
lenders can assess credit worthiness more efficiently and seamlessly and take informed
lending/investment decisions. It will reduce acquisition/transaction costs and turnaround
time enabling low-ticket offering and more tailored products and services to customers.
Paytm’s key moat is access to behavioural data and customer insights that may get
democratised or the ability to leverage on the same may come with a lower sharing cost.
16
Assessing Paytm’s market positioning
Payment Services: Market leader but not margin accretive

Paytm had last disclosed annual transacting user base of 120mn as of Jun’21
representing India’s 50% mobile payment users and 25% smart phone users.
Not only is the MTU and merchant base rapidly expanding at CAGR of 26%/34% over
FY19-9MFY22, but retention and higher engagement are reflected in rising proportion
of MTUs (16% of overall consumers in 9MFY22 compared to 14% in FY21) and average
transaction per customer per month (at 22 in Q3FY22).
Run-rate of merchant GMV at Rs8.9trn for FY22E is estimated to command a share of

>25% in merchant digital payments compared to less than 15% prior to FY19.
Commerce and cloud services: An engagement engine; just an

additional player
Commerce & cloud services constituted 23% of operating revenue in 9MFY22,
compared to more than 45% in FY19.
Financial services: Monetisation tool through distribution model

It has developed a technology platform for end-to-end digital journey of lending
products, building capabilities around loan sourcing, loan management system,
underwriting analytics, credit risk model and (digital) collection infrastructure.
Adoption rate for lending products amongst MTUs has gathered pace with >4% availing
Paytm Postpaid, ~0.3-0.4% seeking personal loans and >3% of merchants with Paytm
devices resorting to merchant advance.
Paytm has witnessed strong growth in new user sign ups and the postpaid user base
has crossed 3mn (>4% of MTUs). Over 30% of monthly new sign-ups are new to credit
users.
Cross-selling effectiveness is demonstrated in case of personal loans as 50% of loans

are disbursed to its existing postpaid users. Also, for merchant lending, repeat loans
have witnessed strong uptick, with 25% merchants having taken a loan more than once.
It has already sold 31.5mn cumulative attachment products and insurance policies to
11.3mn unique insurance customers. Paytm Insurance Broking Private Limited currently
has direct integration with 47 insurance companies in India.
It has over 1.3mn consumers for direct mutual fund investments. As of March 31, 2021,
it had 208k equity trading accounts. It had 74mn investors who have used its digital gold
service since launch in April 2017.
17
How does revenues stack up in the medium term
Payment Services: MTUs to double; merchants with devices to quadruple

Monthly transacting user base of Paytm is likely to double over FY22-26E to more than
120mn.
Paytm’s P2M GMV UPI is forecast to compound at a CAGR of 45% over FY22-26E and
constitute bulk of its GMV upwards of 60%. MDR linked GMV is estimated to grow at
>20% over FY22-26E largely led by improving share in card payments. We forecast
Paytm’s merchant GMV to grow at 36% CAGR over FY22-26E to reach Rs30trn by
FY26E and with rising competition, we expect its share in industry-wide merchant digital
payment to sustain above 20%.
We expect reported take rates on payment GMV to contract from 40bps in FY22 to
<30bps by FY26E and payment business revenue to grow at 26% CAGR.
We believe rising MDR-bearing payment GMV growth, new large partner wins in
payment gateway services and growth in number of EDC and soundbox devices will
drive the proportion of payment services to merchants further up to 68% by FY26E (post
registering >30% CAGR over FY22-26E).
As compared to a net take rate drag of 30bps in payment business in FY19, it can be
accretive to the extent of 8bps by FY26E.
Commerce and cloud services: High margin cloud business to drive
growth
We expect commerce GMV to grow at 31% over FY22-FY26E and commerce revenue
with some marginal decline in take rates to grow at 27%.
Cloud business, particularly PAI cloud and advertising business will too ramp up at 34%
CAGR over FY22-26E. Revenue from credit card partnerships is also recorded in cloud
revenues. Contribution of this high-margin cloud business, despite strong scale in
financial services revenues, will still sustain around 16% and provide significant delta to
contribution margin as well as to trajectory towards positive EBIDTA.
Lending and financial services: Scale will be key to profitability
We estimate that 18-19mn consumers (15% of MTUs) and 1.2mn merchants (>10% of
merchants with Paytm devices and >3% of total merchant base) will avail financing
product through Paytm platform by FY26E. We expect consumer loan disbursals
(postpaid + PL) to grow more than 7x by FY26E to 110mn loans and merchant loan
disbursals to be 10x to 1.2mn.
Small value loan is its strength and differentiator and we expect postpaid average ticket
size of Rs3k, personal loan ticket size of < Rs100k and merchant loan ticket size of
Rs160k. This translates to disbursements of Rs614bn by FY26E (including Rs425bn of
consumer loans and Rs189bn of merchant loans). Currently, we believe, 50% disbursals
are towards postpaid and balance is equally distributed between personal and merchant
loans. We expect the proportion of postpaid to be around 53-55% and merchant lending
proportion will inch up to >30%.
In the lending business, Paytm generates revenue in the form of distribution/sourcing
fees, convenience fees and collection fees. We expect some moderation in take rate
18
with rising competition as well as improving penetration. Take rate for postpaid product
is anticipated to come off to 2.8% and for personal loan and merchant loan at 4.8-5.0%.
We, thereby, forecast financial services revenue to grow at a CAGR of 57% over FY22E-
26E, comprising 18% of operating revenue (from <5%/<10% in FY21/FY22E).
Some visibility on positive EBITDA post FY26E
Contribution margin to improve to 40/46%% by FY24E/FY26E

Consequent to improvement in cost ratios and operating leverage benefit with scale, it
will be able to improve its contribution profit and contribution margin. We expect
contribution margin that has crossed the hurdle of being in negative zone in FY19 to a
positive contribution of 13% and 30% in FY21/FY22E has the potential to further
improve to 40%/46% by FY24E/FY26E, respectively.
Some visibility on positive EBITDA margin post FY26E
Over the past 3 years, it has substantially improved EBITDA margin from a negative
drag of (135%) in FY19 to (50%) in FY22E. We expect improvement trajectory to
continue and there is some visibility of it getting into positive territory post FY26E. Annual
non-cash ESOP charges of Rs10-18bn over FY22-26E will drag reported EBITDA.
Adjusted EBITDA margin (excluding ESOP charges) will turn positive by FY26E.
Table 7: Medium-term outlook across businesses
CAGR (2019-22E) CAGR (2022-26E)
Key Operating metrics
GMV 57.3% 36.2%
Commerce GMV (FY20-22E) -22.7% 30.8%
Average MTU 20.8% 19.2%
BNPL loan disbursements 67.2%
Personal loan disbursements 49.3%
Merchant loan disbursements 88.1%
Total loan disbursements 68.5%
Revenue from operations
Total Payment and Financial service revenue 33.3% 30.7%
Total Payment revenue 31.4% 26.0%
-Payment to consumer 12.2% 17.1%
-Payment to merchant 61.2% 31.7%
Financial service revenue 52.9% 57.1%
Total Lending business revenue 61.0%
-BNPL revenue 61.9%
-Personal loan revenue 41.2%
-Merchant loan revenue 76.5%
Other Financial service revenue 41.7%
-Insurance service revenue 49.6%
-Wealth management revenue 35.6%
Total Commerce and cloud revenue -7.8% 31.6%
-Commerce revenue -28.1% 26.9%
-Cloud revenue 30.2% 34.1%
Other operating income
Total Revenue from operations 17.3% 30.9%
Expenses
Payment processing charges 8.2% 23.6%
Marketing and promotional expenses -34.0% 24.1%
Employee benefits expense 44.9% 15.0%
- Other Employee expenses 32.4% 21.9%
- ESOP cost 84.7% -0.2%
Software, cloud and data centre expenses 17.1% 11.0%
Other Expenses 0.8% 11.0%
Total Expenses (other than Depr. & Int. exp.) 0.5% 19.0%
19
Positive catalysts that can swing earnings delta
Ability to monetise UPI transactions can swing earnings delta

Low value UPI transactions utilise significant system bandwidth and resources. To
compensate the cost to UPI providers for such low value transactions, after accelerated
adoption, there could to be some fee mechanism that may be proposed by the regulator.
Ability to monetise UPI that constitutes nearly half of Paytm’s GMV can swing earnings
delta as presently revenue per GMV is ~55-60bps and EBITDA loss is ~20-30bps.
Regulator levies market share cap – not winner take all market; to
benefit Paytm to increase engagement
As per NPCI guidelines, UPI leaders namely PhonePe and GooglePay that currently
enjoy 48% and 36% market share, respectively, are required to cap their share at 30%
each post CY22. Paytm being the next leader with 8-9% share will eventually benefit
with this market share transition. However, UPI transaction is revenue neutral (zero
MDR), but will enhance engagement or retention of customers on its platform.
Wallet interoperability will benefit the category leader in the form of

interchange
Prepaid Payment Instruments (PPI) in the form of digital wallets will have to enable
interoperability of wallet balances via the unified payment interface (UPI). QR codes in
all modes shall be interoperable by March 31, 2022 as per the RBI. Paytm commanding
more than 50% market share in wallet P2M transactions will tend to benefit as it will
incentivise increased usage of wallet on different QR platforms. Unavailability of wallet
at QR checkout option would have induced users to go in for UPI. Paytm may end up
with earnings interchange fee to the tune of 30-50bps.
Transition to small finance bank – an optionality

RBI guidelines for ‘on tap’ licensing of Small Finance Banks (SFB) in private sector
allows existing payment banks with successful track record of at least five years to apply
for conversion into SFB. Paytm Payments Bank would be eligible to apply for conversion
into small finance bank from May’22. On RBI’s approval, it would expand the canvas for
Paytm Payments Bank as it would be able to offer small ticket loans on its own balance
sheet and will have no cap on deposit acceptance or balance. However, until then,
Paytm will need to adopt sourcing and distribution route on behalf of financial partners
for scale up of financial products.
20
III. Valuations
Consumer and merchant ecosystem core to its business model
and unit economic
Paytm ecosystem has multiple, self-reinforcing flywheels, that drive consumer and
merchant engagement and growth on its ecosystem. This being core to its business
model and unit economics, we therefore derived our target price for Paytm based on
this business genesis. We are fully cognisant of the fact that two-sided ecosystem
(consumer and merchant) is very interdependent. Also, we do note that one bucket
economics can be compromised to monetise the other. As number of MTUs (using
Paytm app or Paytm payment instruments) keep expanding, it becomes conducive for
merchant acquisition as they start enrolling for Paytm instruments and devices. As
merchant enrollment rises (the way we see Paytm in every nook and corner), consumers
too witness wider acceptance of their payment instrument. However, to better derive the
value of the ecosystem, we have analysed the revenue streams and estimated how
much proportion is linked to consumers and merchants distinctly.
Customer lifetime value derived MTUs/merchants to assess

business valuation
Based on detailed component assessment of revenue streams, we believe, it generates
revenue of Rs350-375 per MTUs and Rs1.0-1.1k per merchants on an average. This is
excluding the financial services revenue that is still at a nascent stage. Against this, it
incurs direct cost in the range of Rs250-275 per MTU and Rs750-775 per merchant.
Cost has been significantly scaled down from >Rs1.0k in FY19 and endeavour is to
grow the cost base at a pace relatively slower than the revenues. Besides incremental
positive payment business contribution, improvement in net unit economics will be
contingent on its ability to scale up the financial services business. Anticipating adoption
of lending products amongst >15% of MTUs and >35% of merchants with EDC or
soundbox device, we forecast distribution of financial products to generate revenues of
>Rs100 per MTUs and >Rs200 per merchant. Through this, we arrive at customer
lifetime value of Rs2k per MTU and of Rs29.6k per merchant. Superimposing this to
MTU base of 92mn and merchant base of 33mn by FY24E and post the adjustment of
other costs, we forecast Paytm’s business value of Rs805bn. Considering the cash on
balance sheet and value of associate/subsidiary entities, we derive Paytm’s intrinsic
business value at Rs940bn (Rs1,352 per share).
On our target value of Rs1,352 per share, Paytm is being valued at ~9.5x operating
revenue largely at a slight premium to global fintech with comprehensive offering, in-line
with BNPL players and at a discount to the global card network entities. Also, it is to be
noted that Paytm revenue is likely to grow at >35% CAGR over FY22-FY24E and >25%
over FY24-26E which is well above the industry average. Our valuations translate to
0.3x Price/revenue growth ratio. Initiate coverage on the stock with ‘BUY’ rating.
21
Table 8: Customer lifetime value to drive intrinsic business value
SOTP Rs mn Per share
LTV for consumer 1,83,475 264
LTV for merchants 9,88,597 1,422
LTV for customers at entity level 11,72,072 1,686
Net business value (post fixed costs) 8,05,626 1,159
Net cash and cash equivalent 1,01,250 146
Fair value (for equity shareholders) 9,06,876 1,305
Share of associates/subsidiaries 32,780 47
9,39,656 1,352
Table 9: Customer lifetime value: Rs2k per consumers; Rs30k per merchant
Rs mn FY19 FY20 FY21 FY22E FY23E FY24E FY25E FY26E FY27E
Revenue per user
- Consumer 661.80 433.98 288.89 372.60 400.67 410.48 432.17 438.63 429.58
- Merchant 741.96 720.06 707.39 1,096.05 1,390.66 1,724.12 2,116.54 2,510.59 2,799.16
Cost per user
- Consumer -1,111.24 -523.48 -265.38 -264.70 -254.24 -240.88 -238.38 -227.98 -208.14
- Merchant -1,256.56 -883.68 -589.11 -774.54 -937.34 -1,090.80 -1,271.58 -1,441.50 -1,536.36
Contribution per user
- Consumer -449.43 -89.50 23.51 107.90 146.42 169.60 193.80 210.65 221.44
- Merchant -514.60 -163.62 118.28 321.52 453.33 633.32 844.97 1,069.09 1,262.80
Lifetime value per customer (Rs)
- Consumer 1,995
- Merchant 29,630
Sensitivity analysis on key operating parameters

We have also performed sensitivity analysis on some of the key operating parameters
influenced both by internal strategic execution and external factors.
 Net payment take rate: As compared to a drag of 30bps in payment business net
take rate in FY19, it can be accretive to the extent of 8bps. This will be led by growth
in merchant-oriented revenues through rollout of EDCs /soundbox as well as
payment gateway income. UPI monetisation can be a huge earnings delta to the net
take rate. Sensitivity to 6 bps net take rate is 9-12% EBITDA margin delta on the
positive and 12-15% lower margin in adverse circumstance.
 Consumer lending adoption rate: We expect postpaid lending adoption rate to
rise to 15% of MTUs by FY26E with Rs3k average ticket size. Sensitivity to adoption
rate amongst MTUs of 5-6% pps has an impact of 1.0-2.5% on EBITDA margin.
 Merchant lending adoption rate: We expect adoption of merchant cash advances
to grow 10x to 600k merchants and with average ticket size of Rs150-160k.
Sensitivity to adoption rate amongst merchants with devices to the extent of 12%
pps, it will likely have an impact of 1.0-2.0% on EBITDA margin.
 Similarly, growth in marketing spend depending on the targeted scale up of
merchant and consumer base will directly influence EBITDA margin.
Deriving a bear and bull case from these scenarios, reported EBITDA margin can be as
high as 15% by FY26E in optimistic scenario and as low as (negative) 22% in adverse
circumstances (vs base case scenario of negative 1.15% by FY26E). Extrapolating
these scenarios to derive Paytm intrinsic business value, our bear case sensitivity lands
us to value the company at Rs533bn (Rs767 per share) and in favourable bull case we
arrive at a valuation of Rs1.37tn (Rs1,971 per share).
22
Table 10: Sensitivity analysis on EBITDA margins with changes in key variables
Cases Bear Case Base Case Bull Case
FY23E FY24E FY25E FY26E FY23E FY24E FY25E FY26E FY23E FY24E FY25E FY26E
Assumptions
Take rate (%) 0.31 0.28 0.26 0.23 0.37 0.34 0.32 0.29 0.43 0.40 0.38 0.35
BNPL penetration (%) 0.5 3.0 6.0 9.0 6.5 9.0 12.0 15.0 12.5 15.0 18.0 21.0
Merchant device 3.0 8.0 12.0 15.0 15.0 20.0 24.0 27.0 27.0 32.0 36.0 39.0
penetration (%)
Mkt exp as % rev. (%) 20.0 18.8 17.5 15.3 16.0 14.8 13.5 12.3 12.0 10.8 9.5 8.3
EBITDA (Rs bn) -42.7 -39.5 -33.2 -28.1 -31.4 -24.1 -12.5 -1.8 -19.3 -7.3 9.8 26.6
EBITDA (%) -68.5 -48.6 -31.6 -22.1 -42.5 -24.7 -9.9 -1.2 -22.5 -6.4 6.7 14.8
Table 11: Payment net take rate (% of merchant GMV) sensitivity on EBITDA margin
Cases Assumptions (%) EBITDA (Rsbn) EBITDA Margin (%)
Base -0.06 0.31 0.28 0.26 0.23 -38.1 -33.2 -25.0 -17.9 -57.5 -38.3 -22.4 -13.3
Base -0.04 0.33 0.30 0.28 0.25 -35.9 -30.2 -20.8 -12.6 -52.1 -33.4 -17.9 -8.9
Base -0.02 0.35 0.32 0.30 0.27 -33.7 -27.1 -16.7 -7.2 -47.1 -28.9 -13.8 -4.9
Base net 0.37 0.34 0.32 0.29 -31.4 -24.1 -12.5 -1.8 -42.5 -24.7 -9.9 -1.2
take rate
Base +0.02 0.39 0.36 0.34 0.31 -29.2 -21.0 -8.3 3.6 -38.1 -20.8 -6.4 2.3
Base +0.04 0.41 0.38 0.36 0.33 -27.0 -17.9 -4.2 9.0 -34.1 -17.1 -3.1 5.4
Base +0.06 0.43 0.40 0.38 0.35 -24.8 -14.9 -0.0 14.4 -30.3 -13.8 -0.0 8.4
Table 12: Consumer lending adoption rate (% of MTU) sensitivity on EBITDA margin
Base -6 0.5 3.0 6.0 9.0 -32.3 -25.1 -13.8 -3.3 -45.1 -26.6 -11.3 -2.2
Base -4 2.5 5.0 8.0 11.0 -32.0 -24.8 -13.4 -2.8 -44.2 -25.9 -10.8 -1.8
Base -2 4.5 7.0 10.0 13.0 -31.7 -24.4 -12.9 -2.3 -43.3 -25.3 -10.4 -1.5
Base 6.5 9.0 12.0 15.0 -31.4 -24.1 -12.5 -1.8 -42.5 -24.7 -9.9 -1.2
BNPL
adoption
Base +2 8.5 11.0 14.0 17.0 -31.2 -23.7 -12.1 -1.3 -41.6 -24.1 -9.5 -0.8
Base +4 10.5 13.0 16.0 19.0 -30.9 -23.3 -11.7 -0.8 -40.8 -23.5 -9.1 -0.5
Base +6 12.5 15.0 18.0 21.0 -30.6 -23.0 -11.2 -0.3 -40.0 -22.9 -8.7 -0.2
Table 13: Merchant lending adoption rate (% of merchant with devices) sensitivity on EBITDA margin
FY23E FY24E FY25E FY26E FY23E FY24E FY25E FY26E -45.0 -27.4 -12.4 -3.6
Base -12 3.0 8.0 12.0 15.0 -32.7 -26.0 -15.2 -5.3 -44.2 -26.5 -11.5 -2.7
Base -8 7.0 12.0 16.0 19.0 -32.3 -25.4 -14.3 -4.1 -43.3 -25.6 -10.7 -1.9
Base -4 11.0 16.0 20.0 23.0 -31.9 -24.7 -13.4 -2.9 -42.5 -24.7 -9.9 -1.2
Base ML 15.0 20.0 24.0 27.0 -31.4 -24.1 -12.5 -1.8 -41.6 -23.8 -9.1 -0.4
adoption
Base +4 19.0 24.0 28.0 31.0 -31.0 -23.4 -11.6 -0.6 -40.8 -22.9 -8.4 0.4
Base +8 23.0 28.0 32.0 35.0 -30.6 -22.7 -10.7 0.6 -40.0 -22.1 -7.6 1.1
Base +12 27.0 32.0 36.0 39.0 -30.2 -22.1 -9.8 1.8 -45.0 -27.4 -12.4 -3.6
Table 14: Marketing expenditure as % of revenues sensitivity on EBITDA margin

Base +6 22.0 20.8 19.5 18.3 -35.9 -29.9 -20.1 -11.0 -48.5 -30.7 -15.9 -7.2
Base +4 20.0 18.8 17.5 16.3 -34.4 -28.0 -17.5 -7.9 -46.5 -28.7 -13.9 -5.2
Base +2 18.0 16.8 15.5 14.3 -32.9 -26.0 -15.0 -4.8 -44.5 -26.7 -11.9 -3.2
Base 16.0 14.8 13.5 12.3 -31.4 -24.1 -12.5 -1.8 -42.5 -24.7 -9.9 -1.2
Base -2 14.0 12.8 11.5 10.3 -30.0 -22.1 -10.0 1.3 -40.5 -22.7 -7.9 0.8
Base -4 12.0 10.8 9.5 8.3 -28.5 -20.2 -7.5 4.4 -38.5 -20.7 -5.9 2.8
Base -6 10.0 8.8 7.5 6.3 -27.0 -18.2 -5.0 7.4 -36.5 -18.7 -3.9 4.8
23
Chart 27: Average MTU as well as merchant base to grow 2-3x over the next 5
years
No.of merchants (mn) Average MTU (mn)
140.0
122.5
120.0 107.4
92.0
100.0
76.3
80.0
(mn) 60.6
60.0 45.1
39.7
34.4
40.0
36.0 37.8
20.0 30.3 33.4
26.4
11.2 16.3 21.1
-
Table 15: Paytm valuation suggests it trades largely in-line with or at a slight premium to global peers
SALES EBIDTA
MKT P/S EV/SALES EV/EBITDA EBITDA Margin (%)
Growth Growth
Name Country CAP
CY21-23 CY21-23
($ mn) CY21 CY22 CY23 CY21 CY22 CY23 CY21 CY22 CY23 CY21 CY22 CY23
CAGR CAGR
One 97
India 7,799 11.1 7.8 5.9 -23 -18 -24 37% -2% -48% -43% -25%
Communications Ltd
Bajaj Finance Ltd India 56,161 16 19 12 20 23 15 26 37 26 14% 13% 59% 63% 58%
Just Dial Ltd India 941 10 9 7 5 5 4 35 27 15 20% 25% 23% 16% 25%
United
Visa Inc 4,86,602 20 16 14 21 17 15 26 24 21 18% 20% 69% 70% 71%
states
United
Mastercard Inc 3,61,441 19 16 14 20 16 14 33 27 23 18% 22% 58% 60% 62%
states
United
PayPal Holdings Inc 1,34,313 5 5 4 5 5 4 38 18 14 18% 28% 22% 26% 27%
states
United
Block Inc 61,995 3 3 3 3 60 38 6% 7%
states
Kakao Corp South Korea 34,237 6 5 4 6 5 4 27 22 0% 18% 19%
Adyen NV Netherlands 65,702 9 41 31 9 38 28 106 60 44 -45% 36% 11% 63% 65%
America Movil SAB
Mexico 59,971 1 1 1 2 2 2 6 6 4% 3% 38% 38% 38%
de CV
Afterpay Ltd Australia 14,336 21 13 8 21 13 8 237 82 57% -15% 5% 10%
Openpay Group Ltd Australia 40 2 1 1 2 1 1 96% -92% -212% -36% 0%
United
Sezzle Inc 336 2 2 2 1 -35% -27%
states
Splitit Ltd Australia 66 3 2 3 2 6 -32% 27%
Source: Bloomberg, I-Sec research
Note: Paytm metrics are for FY22E / FY23E / FY24E
24
Table 16: Consumer and merchant base superior to peers
Service provider Consumer base Merchant base
Paytm >350 mn registered users; 64.4mn average monthly 24.9mn (For Q3FY22 vs. 20mn a year ago)
transacting users (Dec'21)
Phonepe ~350mn registered users; >150mn monthly active users 25mn stores across 15.7k towns/cities
(Dec' 21)
Zest Money 4 mn approved customers out of >12mn customer base; 600k merchants
75% are repeat customers
Lazy Pay 4mn current active users; 150k new users every month 28k new merchants onboarded in 2021
Simpl 7 mn customers 10k merchant base
Flipkar Pay Later 2.8mn customers; 42mn transactions
Amazon Pay Later 2mn customers (July 2021)
ePayLater 0.1mn registered retail store user; disburses Rs1bn
per month
Kissht Served 3.1mn customers; Monthly disbursements of Rs3- Served 3.1mn customers; Monthly disbursements of
4bn Rs3-4bn
Pine Labs Over 150K merchants, 350k POS terminals across
3700+ cities in India and Malaysia
Mswipe >675k POS merchants
Razorpay ~8mn businesses use Razorpay
Bajaj Finance 16.5 mn active consumers on its consumer app EMI store currently hosts 27,917 SKUs across
4.7 mn customers on its wallet 23,250 merchants (Dec'21)
55.4 mn - customer franchise
21.8mn users on Bajaj Finserv Mobikwik app
(Dec'21)
HDFC Bank 61.8mn users, 36.7mn debit cards, 14.9mn credit cards 2.13mn merchant acceptance points as of FY21 and
(FY21) targeting 20mn by FY24E
Axis Bank 140 mn - known to bank consumer base 1.2 mn merchants transacting per day on its stack
(Dec'21) 6mn daily transactions for merchants
(Dec'21)
State Bank 45.4 mn YONO app
175 mn UPI users
279 mn debit cards users
97 mn internet banking users
(Dec'21)
SBI cards 13.1mn cards in force (Dec'21)
Source: Company data, Media articles, I-Sec research.
25
IV. Sizeable two-sided digital ecosystem

Paytm is India’s leading digital ecosystem for consumers and merchants offering
payment services, commerce and cloud services and financial services to >350mn
consumers and over 24.9mn merchants, as of Dec’21. Paytm ecosystem has multiple,
self-reinforcing flywheels, that drive consumer and merchant engagement and growth
on its ecosystem which is core to its business model and unit economics.
Table 17: Paytm has created sizeable leading digital ecosystem for consumers and merchants
Key Business Snapshot
Payment Service Cloud and Commerce Financial Services
Rs6.0trn GMV in 9MFY22 Rs9.0bn commerce GMV in Q1FY22 8.7mn no. of loans and Rs41bn loans disbursed in 9MFY22
* ATUs equivalent * UPI P2M market 5-6% GMV take rate
to 50% mobile share estimated : 25-
payment and 25% 28%
of smartphone
users * 65-70% market
share in wallet
* 40% market share payment transaction
in mobile payment volume
transaction volume
* ~8% market share

in overall UPI
transactions (value)
* >20% market
share as UPI
beneficiary bank
(value)
Customer Merchants Customer Merchants Banking services Lending Other financial
services
>350mn 24.9mn merchants Travel ticketing: Increase in 65.4mn savings Paytm postpaid Insurance: 11.4mn
customers (wallet Domestic, demand through account (BNPL): Rs12bn unique insurance
as well) international airlines, targeted outreach BNPL loans customers
>2,000 bus to offer service Fixed deposits: disbursed in
operators integrated such as ticketing, Rs20.2bn Q3FY22
commerce, deals,
loyalty services etc.
Monthly Soundbox or POS Entertainment 424 advertisers Paytm payment Personal loans: Attachment
transacting users devices: 2mn ticketing: run campaign bank: Largest UPI Rs5bn disbursed in products: 31.6mn
(MTUs): 64.4mn devices Partnership with beneficiary bank Q3FY22 attachment products
(Dec'21) >1,200 screens and New ad format with market share of and insurance
Annual offers 2,200 events constitutes >40% of >15% in transaction policies sold
transacting users in Mar-21 revenues volume
(ATUs): 120mn
(Jun'21)
10,367 total Paytm QR code Mini-Apps: 455 Software and Lowest technical Credit cards: Co- Wealth: Rs69bn
transactions in listed apps cloud services decline rate of branded card in investment in mutual
9MFY22 0.01% as a remitter partnership with SBI, fund, gold and stock
Visitor base of bank while other Citibank, HDFC broking as on Jun-
8.7mn MTUs banks had a Bank 21
weighted average
rate of 1.06%
UPI handles: Paytm all-in-one Paytm First Merchant advance: >1.3mn consumers
155mn payment gateway Games: 28mn Rs5bn disbursed in for direct mutual
UPI: 926mn infrastructure registered users Q3FY22 fund investments
transactions in Dec-
21 (Paytm Bank is
the biggest
beneficiary)
Business Paytm app 208k equity trading
accounts
74mn investors use
digital gold service
Source: Company data, I-Sec Research
26
Payments platform is at the core of its ecosystem wherein it acquires customers on
consumer app for bill payments, money transfer and offline merchant payments, and
offers them Paytm Payment Instruments (Paytm Wallet, Paytm Payments Bank
account, and Paytm Postpaid) and Paytm UPI. It acquires merchants for QR (for in-
store), Payment Gateway (for online merchants) are Paytm primary means to on-board
new merchants. Products such as soundbox and POS devices and Paytm Business
Payments increases their engagement and retention on Paytm ecosystem with
monetisation characteristics in many cases.
Not only is the MTU and merchant base rapidly expanding at CAGR of 26%/34% over
FY19-9MFY22, but retention and higher engagement is reflected in rising proportion of
MTUs (16% in 9MFY22 of overall consumers compared to 14% in FY21) and average
transaction per customer per month (at 22 in Q3FY22).
Leveraging the scale, reach, and insights from high frequency engagement by
consumers and merchants on its payments platform, it offers access to financial
products to customers (Paytm Postpaid, personal loans) and merchants (merchant
loans) through its financial institution partners. Its two-sided (consumer and merchant)
ecosystem enables it to offer high-margin commerce and cloud services to its merchant
base.
27
Payment Services: Market leader but not margin accretive
Customer/merchant acquisition engine with comprehensive product

suite
Payments platform is at the core of its ecosystem. Paytm offers comprehensive products
suite to its consumers and merchants for online and in-store payment services. It
acquires customers on consumer app to make bill payments across 26 use cases,
transfer money or make in-store payments. They can use wide range of payment
options including Paytm wallet, Paytm UPI (over 155mn Paytm UPI handles), QR code
(including Paytm QR or All-in-One QR or UPI QR), Paytm in-store POS machines, or
smart POS. They, too, have an access to Paytm FASTags, fixed deposits (outstanding
fixed deposits were Rs20.2bn), Paytm Debit Card (65.4mn savings accounts), Paytm
Credit Card (co-branded credit cards in partnership with SBI, Citibank, HDFC Bank).
Corporates can also create customised sub-wallets such as Food Wallet, Gift Wallet,
Allowance Wallet and Fuel Wallet for their employees.
Similarly, it acquires merchants to receive or accept usage of these payment

instruments through Payment Gateway Services, All-in-One QR Code, All-in-One POS
Devices, Paytm Soundbox and Soundbox 2.0. A single platform solution, Paytm
Business Payments, enables merchants to make payments for all business use cases,
including to vendors, employees and customers.
Potential target addressable market to grow at ~6x by FY26E

Digital payments market size in India has crossed US$20trn (annualised run-rate) with
more than 50bn transactions in 9MFY221. These are expected to more than double to
US$40-50trn by FY26. Within this, retail digital payment market (including NEFT, IMPS,
UPI, cards, NACH, prepaid instruments, etc) in India has grown at a CAGR of >25%
over FY17-9MFY22 (with annualised run-rate for FY22 at Rs420bn). Proportion of UPI
has risen significantly during the period to 17% in value terms and 63% in volumes.
Prepaid instruments (including wallets) constitute less than 1% of transaction value
though in terms of volume still account for 9% of retail payment transactions.
Table 18: Retail digital payment market in India grew at a CAGR of >25% over FY17-9MFY22
FY17 FY19 FY21 9M FY22
Retail Digital payments break-up Volume Value Volume Value Volume Value Volume Value
Credit Transfers – Retail 40% 92% 51% 93% 73% 93% 79% 93%
Of which: IMPS 5% 3% 8% 6% 8% 8% 7% 9%
Of which: NACH 8% 3% 4% 3% 4% 3% 3% 3%
Of which: NEFT 17% 86% 10% 81% 7% 70% 6% 64%
Of which: UPI 0% 0% 23% 3% 51% 11% 63% 17%
Debit Transfers and Direct Debits 3% 2% 2% 2% 2% 2% 2% 2%
Of which: NACH 3% 2% 2% 2% 2% 2% 2% 2%
Card Payments 36% 5% 27% 4% 13% 4% 9% 4%
Of which: Credit cards 11% 2% 8% 2% 4% 2% 3% 2%
Of which: Debit cards 25% 2% 19% 2% 9% 2% 6% 2%
Prepaid Payment Instruments 20% 1% 20% 1% 11% 1% 9% 1%
Total 100% 100% 100% 100% 100% 100% 100% 100%
Total (Volume in mn) 9,583 23,124 43,585 50,173
Total (Value in bn) 1,39,093 2,80,252 3,58,592 3,16,541
Source: RBI
28
Payments to consumers
 Number of Indians with access to internet is expected to increase to 0.9-1.0bn by
FY26 (from 0.6-0.7mn in FY21), representing more than 70% of the population.
 Similarly, number of smartphone users are expected to reach 800-850mn by FY26,
representing more than 55% of total population and 80% of internet users.
 Unique mobile payment users increased from 252mn in FY21 to 650-700mn in
FY26. Mobile payments have increased ~16x from 1.6bn in FY17 to 26bn in FY21
and are expected to increase 5x crossing 100bn payments in volume. Mobile
payments are expected to reach ~US$3.1trn in value by FY26E.
Chart 28: Mobile payments by value to grow 5x Chart 29: Mobile payments (P2M) by value to grow
over the next 5 years ~7x over the next 5 years
3,500 900
800
3,000
3,065 800
700
2,500
600
2,000 500
($ bn)
($ bn)
~5x
400 ~7.6x
1,500
300
1,000
200
500
608 100
105
0 0
FY21E FY26P FY21E FY26P
Source: Industry data, I-Sec research Source: Industry data, I-Sec research
Payments to merchants
 Digital payment mode at merchants typically includes QR code, Point of Sale (POS)
machines and payment gateway. We estimate merchant digital payments
(excluding P2P, NEFT etc) through various instruments including UPI, cards,
wallets, payment gateway to have grown at >35% CAGR over FY17-9MFY22
(with annualised run-rate of >US$450bn for FY22). This, we believe, has the
potential to grow six-fold from FY21 to >Rs130trn (US$1.8trn) by FY26E.
 Mobile payments are revolutionising merchant payments segment (P2M), which is
expected to grow ~8.6x in value by FY26 to US$800bn.
 In India, there are ~65mn merchants of which 45mn have access to internet.
 Currently, over 97mn QR codes have been issued. There are 30-35mn unique
merchants which are using QR codes for digital payments in India and are expected
to increase to 55-60mn by FY26. Out of all the players driving QR adoption, Paytm
has the highest QR code coverage amongst merchants. In October 2020, RBI
mandated proprietary QR players to implement QR code interoperability by March
2022 to facilitate seamless payments for customers.
 TPV of QR code is expected to increase from US$40bn in FY21 to US$300-550bn
in FY26.
29
 TPV of POS machines is expected to increase from US$94bn in FY21 to US$275bn
in FY26.
 TPV of payment aggregator is expected to increase from US$170bn in FY21 to
US$550bn in FY26.
Chart 30: P2M digital payment has potential to Chart 31: UPI, along with cards, will continue to
grow six-fold by FY26E lead growth
UPI - P2M Credit card s
Debit card s Pre paid instru me nts - P 2M 250% FY18-FY22 CAGR FY223-FY26E CAGR
Tota l merchan t value break-up 211%
140 131
200%
120 106
100
150%
78
80
Rs trn
60 53 100%
35 58%
40
19 22 50% 34% 39%
11 15 20% 19% 14% 13% 15%
20 7 9%
- 0%
UPI - P2M Credit Debit cards Prepaid Overall
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
FY25E
FY26E
cards instruments
- P2M
Chart 32: Proportion of UPI in P2M digital payment Chart 33: UPI formed 11% in retail digital payment
to rise as high as 73%
UPI - P2M Credit cards Debit cards Prepaid instruments - P2M UPI Wallets
14.0%
11.4%
100% 5% 4% 3% 3%
11% 10% 8% 7%
13% 13% 10%
90% 13% 11%
12.0%
17%
80% 22% 16% 15%
31% 18%
70% 36% 22% 10.0%
44% 43% 39%
27%
6.9%
60%
29% 8.0%
50% 38%
40% 39%
44% 43% 73%
6.0%
71%
65%
30%
3.1%
55%
20% 44% 4.0%
32%
10% 0.7%
0.7%
0.5%
0.5%
0.4%
0.4%
16% 2.0%
0.2%
0.1%
0.0%
9%
0% 0% 2%
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
FY25E
FY26E
0.0%
Market leader in payments business

 Paytm had last disclosed the annual transacting user base of 120mn as of Jun’21,
representing India’s 50% mobile payment users and 25% smart phone users.
 Consumer retention and engagement on Paytm ecosystem can be gauged from the
proportion of MTUs to overall user base, annual transaction of users and transaction
per user per month.
o Amongst the annual transaction of users, more than 50% do at least one
transaction every calendar month, reflected in Paytm’s monthly transacting user
base of 64.4mn, as of Dec’21.
30
o Also, 3.5bn merchant transactions were processed on Paytm ecosystem in
Q3FY22 translating to average 18 merchant transactions per month per user.
Table 19: GMV by cohort suggests improved engagement with vintage
Transaction Year
FY17 FY18 FY19 FY20 FY21
FY17 1.0x 2.8x 4.9x 6.8x 6.8x
FY18 1.0x 2.9x 3.7x 3.5x
FY19 1.0x 1.8x 1.9x
FY20 1.0x 1.9x
FY21 1.0x
Note: (1) GMV of users acquired in a particular financial year and transacting in three or more use cases in same
or subsequent financial years.
Source: Company data
 In Q3FY22, Paytm reported GMV per MTU (per month) of ~Rs13k, which is
higher than industry-wide spend per user on other payment instruments.
However, it might not be a right metric to compare on MTU basis as on its
payment network, there are several transactions processed outside its user
base as well.
Table 20: Ticket size across various payment instruments suggests high transaction frequency on
Paytm
Credit card Credit card Debit card Debit card
Ticket-size (Rs)
UPI overall UPI - P2P UPI - P2M POS overall POS overall Wallet
Apr-2021 1,869 2,843 686 3,364 3,748 1,985 1,748 364
May-2021 1,932 2,891 759 3,627 3,868 1,923 1,673 460
Jun-2021 1,950 2,889 792 3,473 4,056 1,910 1,732 411
Jul-2021 1,867 2,771 768 3,388 4,113 1,933 1,794 418
Aug-2021 1,798 2,653 764 3,348 4,081 1,943 1,808 420
Sep-2021 1,791 2,670 749 3,301 4,343 1,880 1,793 660
Oct-2021 1,829 2,479 877 2,836 2,892 1,837 1,762 260
Nov-2021 1,836 2,426 917 3,596 5,019 2,236 2,244 446
Dec-2021 1,811 2,380 899 3,357 4,445 1,926 1,883 375
Source: RBI, I-Sec research
 With average monthly transacting user base expanding at the rate 26% CAGR over
FY19-9MFY22 to 64.4mn and GMV per MTU rising at 32% CAGR, overall merchant
GMV registered 57% CAGR over the same period. Run-rate of merchant GMV at
Rs8.9trn for FY22E is estimated to command a share of >25% in merchant digital
payments compared to less than 15% prior to FY19.
Please note: Merchant GMV includes processing of merchant payments through all
instruments (Paytm Wallet, Paytm Payments bank account, other banks net banking,
credit and debit cards, UPI etc).
31
Chart 34: Paytm’s market share in merchant GMV to sustain above 20%
Merchant GMV mkt share UPI P2M mkt share Wallets P2M mkt share
80.0%
70.0%
67.9%
60.0%
62.5%
50.0%
55.1%
54.3%
54.0%
52.9%
51.0%
48.8%
40.0%
30.0%
28.0%
20.0%
25.3%
25.0%
23.6%
23.4%
23.1%
22.7%
20.2%
20.0%
20.0%
15.6%
14.2%
18.7%
19.0%
15.0%
10.0% 8.7%
0.0%
Source: RBI, Company data, I-Sec research
Chart 35: Paytm enjoys 8-9% market share in UPI app transactions
PhonePe Google Pay Paytm Payment Bank App Others
100% 7% 7% 7% 6% 6% 6% 6% 6% 6% 7% 7% 7% 7% 7% 7% 7%
7% 7% 7% 7% 7% 7%
90% 8% 7% 7% 7% 7% 7% 7% 7% 8% 8% 8% 8% 7% 7% 7% 8% 8% 8% 8% 9% 9% 9%
80%
46%
43%
45%
45%
45%
41%
42%
39%
38%
38%
41%
40%
38%
41%
44%
38%
38%
37%
36%
44%
37%
37%
70%
60%
50%
40%
49%
48%
48%
48%
48%
48%
47%
47%
47%
47%
46%
45%
45%
45%
44%
44%
42%
42%
41%
41%
41%
40%
30%
20%
10%
0%
May-20
May-21
Jun-20
Jan-21
Jun-21
Jan-22
Mar-21
Feb-21
Jul-21
Apr-20
Jul-20
Oct-20
Apr-21
Oct-21
Sep-20
Aug-21
Aug-20
Sep-21
Nov-20
Dec-20
Dec-21
Nov-21
Source: NPCI, I-Sec research
Table 21: Paytm Payments Bank’s leadership as beneficiary bank with >20% share
June 2020 December 2020 June 2021 December 2021
Total volume (In %) - mkt share Remitter Beneficiary Remitter Beneficiary Remitter Beneficiary Remitter Beneficiary
Airtel Payments Bank 0.9 0.9 1.0 1.1 1.2 1.2 1.2 1.2
Axis Bank Ltd 8.7 - 8.0 - 6.2 - 5.2 -
Fino Payments Bank - - - - - - 0.4 0.2
HDFC BANK LTD 8.3 6.9 8.5 6.7 8.6 6.5 8.4 6.0
ICICI Bank 6.3 15.3 6.4 12.8 6.0 11.6 5.7 9.4
India Post Payment Bank - - - - 0.4 0.3 0.8 0.5
Kotak Mahindra Bank 2.7 2.0 3.1 2.5 3.3 2.2 3.7 2.3
Paytm Payments Bank 6.2 14.7 6.3 17.0 5.6 17.8 5.4 22.4
State Bank Of India 28.6 18.5 27.3 17.6 28.5 17.3 26.4 16.1
Yes Bank Ltd 0.9 14.1 1.2 13.0 1.3 15.2 1.0 11.8
32
Table 22: Transaction decline is managed well though has risen in Dec’21
June 2020 December 2020 June 2021 December 2021
TD (%) (by volume) Remitter Beneficiary Remitter Beneficiary Remitter Beneficiary Remitter Beneficiary
Airtel Payments Bank 0.52% 0.10% 0.37% 0.10% 1.74% 0.36% 1.47% 0.43%
Axis Bank Ltd 0.19% 0.00% 0.32% 0.00% 0.36% 0.00% 0.02% 0.00%
Fino Payments Bank 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 2.06% 1.54%
HDFC BANK LTD 0.12% 0.01% 0.55% 0.40% 0.06% 0.03% 0.19% 0.09%
ICICI Bank 0.17% 0.02% 0.85% 0.80% 0.17% 0.02% 0.11% 0.05%
India Post Payment Bank 0.00% 0.00% 0.00% 0.00% 0.27% 0.13% 0.86% 0.79%
Kotak Mahindra Bank 0.71% 0.10% 0.55% 0.20% 0.38% 0.14% 1.18% 0.14%
Paytm Payments Bank 0.01% 0.09% 0.03% 0.03% 0.10% 0.05% 0.56% 0.61%
State Bank Of India 2.01% 1.26% 8.96% 9.08% 0.84% 0.71% 4.43% 6.50%
Yes Bank Ltd 0.33% 0.01% 0.55% 0.06% 0.18% 0.00% 1.06% 0.09%
Note: Technical Decline (TD) - Transaction decline due to technical reasons, such as unavailability of systems and network issues on bank or
NPCI side.
 It has built two-sided digital payment ecosystem. As number of MTUs (using Paytm
app or Paytm payment insturments) keep expanding, it becomes conducive for
merchant acquisition to start enrolling paytm instruments and devices. As merchant
enrollment rises (the way we see Paytm in every nook and corner), consumers, too,
witness wider acceptance of their payment instrument.
 Expecting its merchant GMV to be dominated by zero MDR UPI at 50%, its share in
UPI P2M is estimated at 28-30%.
 It enjoys a significant share in wallet P2M at more than 50%, though wallet as a
proportion of industry-wide merchant GMV is getting marginalised to mere 7%.
Presently derives two-thirds of revenue from payments business
Paytm derives around two-thirds of its consolidated operating revenue from payment
business GMV. The payment business revenue pool is dominated by transaction fees
and recurring subscription fees (Soundbox, POS) from merchants and consumer
convenience fees.
However, with rising component of non-MDR bearing UPI transactions from <5% to
almost 50%, payment take rates have contracted from 74bps to 38bps. Consequently,
payment revenues have grown at >30% CAGR and constituted 65-70% of operating
revenues in FY21 / 9MFY22.
Larger part of the payment business growth has been driven by payment to merchants
which constitutes 55% of payment revenues (growing at >60% CAGR over FY19-
FY22E).
Payment to consumers revenues (for payment use cases on consumer app), where UPI
component would be significant, have grown at a mere 12% CAGR.
MTUs to double; merchants with devices to quadruple
MTUs to double by FY26E
 Overall for India, smart phone user base is expected to accrete at 50mn annually to
take the base to 0.8-0.85bn over the next 5 years and mobile payment user base is
forecast to grow to 0.65-0.7bn.
 Paytm may still be able to drive 30-35% of these users to transact at least once
annually on Paytm ecosystem. We expect 17-20% mobile payment users to transact
at least once a month on Paytm ecosystem. Thereby, monthly transacting user base
of Paytm is likely to double over FY22-26E to more than 120mn.
33
 Engagement levels are high on Paytm platform and with expanded product offering
as well as more merchants’ enrollment, it is only anticipated to build further traction.
We forecast GMV per MTU per merchant to increase to Rs18k-20k per month.
GMV as a share of P2M digital payments to sustain above 20%
 Paytm’s P2M GMV UPI is forecast to compound at a CAGR of 45% over FY22-26E
and constitute bulk of its GMV upwards of 60%. This would compare with UPI
constituting 70-75% of merchant GMV as non-Paytm merchant GMV is likely to grow
at a faster pace.
 In the interim, it has an opportunity to gain market share in UPI as NPCI has imposed
a cap of 30% on third party UPI app providers. Dominant leaders namely Google
Pay and PhonePe will have to moderate the pace of incremental growth that might
move in favour of Paytm. While flow of traffic might improve, non-MDR nature will
not be revenue accretive and management’s strategy to tap this opportunity will
have to be looked out for.
 MDR linked GMV is estimated to grow at >20% over FY22-26E largely led by
improving share in card payments.
 We forecast Paytm’s merchant GMV to grow at 36% CAGR over FY22-26E to reach
Rs30trn by FY26E and with rising competition, we expect its share in industry-wide
merchant digital payment to sustain above 20%.
Chart 36: Paytm’s merchant UPI GMV is expected Chart 37: We forecast merchant GMV to grow at
to compound at a CAGR of 45% 36% CAGR; take rates to moderate further
UPI Wallet Others 35 0.80%
0.69%
100% 0.70%
30 0.59%
35% 45% 44% 38% 36% 35% 34% 32%
90% 0.60%
25 0.49%
80%
0.40% 0.50%
70% 20 0.37%
6% 0.34% 0.32% 0.40%
60% 9% 7% 0.29%
12% 15
14% 62% 0.30%
59%
(Rs tn)
50% 56% 10
21% 52% 0.20%
40% 48% 57% CAGR
60% 40% 5 0.10%
30% 35% 2 3 4 9 13 18 24 31
- 0.00%
20%
FY19
FY20
FY21
FY22E
FY23E
FY24E
FY25E
10% 15% FY26E

0% 5%
GMV (Rs tn) Payment take rate on Commerce GMV (RHS)
Take rates to further decline: Rising UPI proportion, pressure on MDR bearing
instruments
 Compared to 36% CAGR in merchant GMV over FY22-26E, we expect payment
business revenue to grow at only 26% as proportion of zero MDR UPI is estimated
to rise to 62% and there will be further pressure of 4-5 bps on take rates of MDR
bearing instruments. Consequently, we expect reported take rates on payment GMV
to contract from 40bps in FY22 to <30bps by FY26E.
34
Chart 38: Payment business revenue will grow at 26%; proportion of zero MDR
UPI to rise to 62%
100 90%
80.1%
90 80%
80 70%
70
60%
60
50%
50 36.5%
40%
(Rsbn)
40
25.0% 25.7%
30%
30 17.6%
20 13.2% 11.4% 20%
10 10%
16 18 20 36 49 61 77 90
- 0%
Payment services revenue Payment services revenue growth (RHS)
 We believe rising MDR-bearing payment GMV growth, new large partner wins in
payment gateway services and growth in number of EDC and Soundbox devices,
will drive the proportion of payment services to merchants further up to 68% by
FY26E (post registering >30% CAGR over FY22-26E).
o Recently, it has onboarded a leading ride-sharing company, the largest life
insurance company, and a leading e-commerce company.
o Onboarding small offline merchants helps it create a large payment network and
a channel to cross-sell and up-sell other use cases such as lending and devices
as well as provide a high frequency transaction use case to its consumers.
o With new bank partnerships, brand integration in EMI, it has accelerated the
deployment of devices to 2mn (constituting 8% of merchant base). Not only it
earns MDR on the GMV processed for merchant payments (for MDR bearing
instruments), but additionally earn subscription fee for devices as well.
 Within payments revenue, payment to consumers (for payment use cases on
consumer app) is forecast to grow at 17% CAGR over FY22-26E. Increased
introduction and adoption of new use cases and growth in MDR bearing transaction
volume would support this revenue growth.
35
Chart 39: Proportion of payment services to merchants will rise further up to
68%
Payment to consumers share Payment to merchants share
100%
31% 43% 51% 57% 61% 64% 66% 68%
90%
80%
70%
69%
60%
50% 57%
40% 49%
43%
30% 39%
36% 34% 32%
20%
10%
0%
To be offset by reduced payment processing cost; be net revenue accretive

 Payment processing charges (% of GMV) have reduced from ~1.0% in FY19 to
0.35% in 9MFY22. We primarily attribute this to: 1) Technology-driven optimisation
of transaction routing, 2) higher share of UPI in instrument mix and 3) improvement
in transaction rates from banks owing to our increasing scale. These factors are
expected to play favourably in coming years as well and we forecast payment
processing charges to settle around 0.22% of GMV.
 This clearly suggests that as compared to a net take rate drag of 30bps in payment
business in FY19, it can be accretive to the extent of 8bps by FY26E.
 The company has spent >Rs86bn in marketing, promotions and incentives over
FY17-21, to reach a scale of >350mn consumers and over 24.9mn merchants, as
of Dec’21. We expect spends to continue going forward as well (discussed in detail
later).
Payment is an acquisition tool through which it attracts transaction flows on its platform
and leverage the same to subsequently monetise through commerce and cloud as well
as financial services.
36
Commerce and cloud services: An engagement engine
Targeted outreach to engage merchants as well as consumers

Through its wide suite of commerce and cloud service offerings, Paytm helps merchants
conduct targeted outreach to its consumers to offer services such as ticketing (for
entertainment and travel), deals, loyalty services, mini apps and advertising. It provides
merchants software and cloud services for various business aspects, such as billing,
ledger, vendor management, customer promotions, catalogue and inventory
management. It also provides enterprise cloud services to telecom companies, and
Paytm AI Cloud (SaaS applications created in-house) to digital and fintech platforms to
track and enhance customer engagement and drive higher conversion for its commerce
offerings.
Encouraging TAM potential; Paytm just a fringe player

Table 23: Estimated market opportunity (US$ bn)
FY21 FY26E CAGR
Online Gaming 2.8 12-13 34%-36%
Travel Ticketing 36 ~60 9%
Film Ticketing 2.6 3.5 9%
E-tail 41 140-160 28%-31%
E-grocery 3.7 22-27 43-49%
Online Food Delivery 2.7-3 13-14 36%
India Advertising 9.3 20-25 ~20%
 E-commerce will exceed US$10bn in GMV terms by FY26, becoming the

mainstream consumption channel for India’s tech-savvy consumers.
 Unique online transacting users are expected to grow from 250-300mn in FY21 to
700-750mn by FY26. This will further fuel growth of digital products and solutions
across sectors.
 Travel ticketing: Travel ticketing market stands at ~US$16bn and is expected to
recover strongly over the next two years post the third covid wave. The overall
market is expected to reach US$60bn by FY26.
 Entertainment ticketing: Like many other sectors, film ticketing also saw a dip of
88% in FY21 but is expected to reach US$3.5bn by FY26.
37
Chart 40: Travel ticketing market to reach US$60bn Chart 41: Entertainment ticketing to recover
sharply post covid pandemic to US$3.5bn
70 4
60 3.5
60.0 3.5
3
50
2.5
40 2.6
($ bn)
($ bn)
2
30 36.0
1.5
20
1
10 16.0
0.5
0.3
0 0
FY20 FY21 FY26F FY20 FY21 FY26F
Source: Industry data, I-Sec research Source: Industry data, I-Sec research
 Online gaming in India operates in 3 categories namely: skill-based games, mobile

app-based games and PC & console based games. In India, there are around
300mn+ online gamers (mostly dominated by casual gamers with 250mn users,
followed by fantasy sports with around 100mn users).
 Gaming industry is still in its nascent stage and has a huge potential to grow, driven
by young population, growing internet access, increasing smartphone users and
cheap data. It is expected to reach US$12-13bn by FY26, a growth of 4.5 times from
FY21. Of the overall online gaming market, real money skill-based gaming is
expected to grow fastest from US$886mn in FY21 to US$5.5bn in FY26. Rummy
and fantasy sports form a major component of real money skill-based gaming.
 Advertising market in India stood at US$9.3bn in CY20 and is expected to more than
double by CY25. Digital marketing spends will likely grow to >US$11bn by CY25 vs
US$3.1bn in CY20, becoming more than half of the total advertising spends in India.
Chart 42: Online gaming industry to grow 4.5x by Chart 43: Advertising market to more than double
FY26 with half of that being digital marketing spends
14 25.0
20-25
12 12-13
20.0
10
8 15.0
($ bn)
($ bn)
6 9.3
10.0
4
5.0
2 2.8
0 0.0
FY21 FY26F CY20E CY25F
Source: Industry data, I-Sec research. Source: Industry data, I-Sec research.
38
As an engagement tool, Paytm is just an additional player
Travel ticketing
 Paytm offers flight (domestic and international accredited agents), bus (>2,000 bus
operators) and train ticket booking facility on its app. It is innovating travel ticketing
vertical by launching new products such as a nearby airport feature, EMI-based
loans for flight travel, contactless ticket buying on buses etc. On a low base, we
expect this business to rebound sharply growing two-folds in FY22 and gradually
normalising FY24E onwards.
Entertainment ticketing
 Paytm has partnerships with 1,200 screens, whose tickets are only available on
Paytm and partner apps. It has also built features such as cancellation insurance,
and Paytm Movie Pass, which entitles the user to multiple movies within a fixed
period. Through Paytm Insider, its wholly-owned subsidiary, it offers sports and
other event ticketing (>2,200 events in a month) services as well.
 There are dedicated platforms for travel ticket and entertainment booking that have
top-of-the-mind recall with customers (MakeMyTrip, Yatra, Expedia, TripAdvisor,
Trivago, IRCTC, Booking.com, Hotels.com, BookMyShow etc) and Paytm would be
just one of the players. Given its more of an engagement tool to just offer ticketing
service to its customers on its platform, the flow of traffic and market share for
ticketing is relatively small. However, there is not much cost incurred in acquiring
customers and hence, it is margin accretive. We expect ticketing revenue growth to
lag the overall commerce and cloud service growth over FY22-26E.
Advertising
 As of Dec’21, 424 advertisers have run campaigns on its platform. It had launched
a new ad format on its platform in Q1FY22, which has seen a strong adoption with
new format constituting >40% of its ad revenue. Paytm Ads has two solutions,
Paymetric and Brand Lift Studies, which are used to analyse advertising campaigns.
Gaming
 Paytm offers mobile and online gaming through its JV (with 55% equity stake),
Paytm First Games Private (PFG) where it has a registered base of 28mn users
(Jun’21). Multi-gaming platform and its flagship offerings include fantasy sports and
Rummy, among others. Rapid adoption of online gaming has led to >15x jump in
revenues from this entity to Rs1.5bn in FY21 with strong traction in Q1FY22 as well
at Rs873mn). However, being in initial stages, it has incurred loss of
Rs2bn/Rs0.86bn for FY21/Q1FY22, respectively.
Android mini-app platform for developers (Paytm E-commerce Private)
 As of Jun’21, the company had over 455 mini-apps on its platform ranging from
content to transaction apps and across a broad range of industries, including food
delivery, gaming, e-commerce, and with a visitor base of 8.7mn monthly active
users. E-commerce is offered by Paytm E-Commerce Private Ltd (PEPL), where it
doesn’t own any equity stake. Revenues from PEPL contracted by 55% CAGR over
FY19-FY21 from Rs9.9bn to Rs1.3bn. Thereby, the proportion of e-commerce in
overall commerce revenues is down from 83% to less than 50%. Again this can be
attributed to dominant presence of dedicated e-commerce platforms namely
Amazon, Flipkart etc.
39
Share in operating revenue dipped to 23% in 9MFY22
 Commerce & cloud services constituted 23% of operating revenue in 9MFY22,
compared to more than 45% in FY19. The fall in the share can be attributed to 1)
plunge in commerce GMV by >70% during FY21 due to disruptions to its partners
in travel, entertainment and e-commerce industries during pandemic. 2) Revenue
from Paytm Mall contracted by 55% CAGR over FY19-Q1FY22. During FY21, travel
industry declined by ~55% and movies and events declined by 88%.
 Commerce GMV with recovery in consumption spends and travel has pulled back
strongly, doubling the annualised run-rate for 9MFY22. Nonetheless, commerce
revenue declined on an average by 27% CAGR over FY19-9MFY22. This was
partially offset by 30% rise in cloud services revenue.
High margin cloud business to drive growth

We expect commerce GMV to grow at 31% over FY22-FY26E and commerce revenue
with some marginal decline in take-rates to grow at 27%.
Cloud business, particularly PAI cloud and advertising business will too ramp up at 34%
CAGR over FY22-26E. Revenue from credit card partnerships is also recorded in cloud
revenue. Contribution of this high margin cloud business, despite strong scale in
financial services revenue, will still sustain around 16% and will provide significant delta
to contribution margin as well as to trajectory towards positive EBIDTA.
Chart 44: Commerce GMV to grow at 31%; Chart 45: Commerce and cloud business will ramp
commerce revenue to register 27% CAGR up at 32% CAGR
300 Com merce service estimates for revenue 7% 40.0
5.8% 35.0
250 5.2% 6%
5.0% 5.0% 30.0
4.8% 4.7% 4.6%
5% 25.0
200 24.6
20.0 -8% CAGR 19.5
4%
(Rs bn)
150 15.0 14.6

3% 3.5
(Rsbn)
10.6
10.0 4.1
100 7.6
2% 5.0 11.9 11.5
4.5 8.0 9.8
7.1 6.4
50 2.5 4.4
1% -
FY19
FY20
FY21
FY22E
FY23E
FY24E
FY25E
FY26E
142 42 85 127 166 207 248
- 0%
Commerce service revenue Cloud service revenue
Commerce GMV % Commerce Take rate (RHS)
40
Lending and financial services: Scale up key to profitability
Monetise transactional customers and merchants

Paytm’s core competency lies in market leading payment franchise, technology
prowess, strong brand, large user base, deep insights of consumers and merchants
behaviour and transaction volume data dump. Naturally, it becomes conducive for
Paytm to offer lending products designed to provide easy and inclusive access to credit,
through financial institution partners, to its consumer and merchant base. This will help
it monetise its customer and merchant franchise created over years.
Consumer credit products are offered by its financial partners on the Paytm app, and
merchant credit through the Paytm for Business app. It has developed a technology
platform for end-to-end digital journey of availing loans building capabilities around loan
sourcing, loan management system, underwriting analytics, credit risk model and
(digital) collection infrastructure. Paytm creates/designs need-based product, distributes
to its user base and manages collections on behalf of its financial partner without
assuming any credit risk on its balance sheet. Financial partner benefits from the access
to Paytm’s customer/merchant base, technology-led underwriting, behaviour insights of
customers and end-to-end digital journey. Being in the middle of payments flows, gives
it a large amount of transactional insights of its consumers and merchants which helps
Paytm design and show customised Paytm Postpaid and Merchant Cash advance
products, in partnership with financial institution partners. It continuously co-creates risk
models with its lending partners to help achieve scale and risk-based pricing.
Digital lending - significant potential, well fragmented, competitive,

too
In the last few years, various fintech players have emerged with innovative business
models to address the huge unmet demand for easy credit access to consumers and
merchants.
Retail lending
Consumer lending from banks and NBFCs across use cases was estimated to be
US$437bn in FY20. This trend of growing consumption behaviour especially amongst
millennials and generation Z population will further expand the need for credit. Tech-
based credit solutions will be better placed to target this credit need compared to
traditional credit institutions, especially considering smartphone and mobile payment
user base was approximately fifteen times and eight times of the unique credit card user
base, respectively, in FY21. Retail credit market is expected to grow by 13% CAGR to
reach US$1trn by FY26.
In retail consumer loans, buy now pay later is an emerging opportunity which is expected
to grow rapidly in India.
Pay later (BNPL segment)

BNPL has already captured 3% market share in the online e-commerce payments
segment and the number could go up to 15% by FY26E. BNPL is becoming a popular
mode of short-term financing amongst millennials. BNPL players have made strong
inroads in e-commerce, foodtech and other online and offline consumption categories.
41
Consumers adopt them both for convenience (for instance, in case of lower ticket size
food delivery purchases) and affordability (for instance, high ticket size shopping
payments via EMI loans to purchase consumer durables) they provide.
Table 24: Globally, BNPL has emerged as a large and fast-growing opportunity
to democratise lending
Australia Sweden US
Total BNPL Transactions processed in value (CY20) ~USD 5-10bn NA USD 20-30bn
BNPL payment contribution to total e-comm payment (CY20) 10% 23% 2%
afterpay, affirm,
Klarna, QLIRO,
Major players operating in the region flexigroup, afterpay,
Collector bank
openpay, Zip Klarna
Source: Industry data
Chart 46: BNPL is a disruptive trend driving access to consumption credit and is likely to grow rapidly in
future - as most of its target categories are themselves also poised for rapid growth in next few years
Addressable Market for BNPL is large and growing … With large opportunity in specific categories / use cases
fast...
Consumer Internet in India - GTV (USD bn)
GTV FY21 GTV FY26 CAGR
300.0
Online Retail USD 41bn USD 140-160bn 28-31%
Online Travel USD 9-11bn USD 35-40bn 30%
eGrocery USD 3.7bn USD 22-27bn 43-39%
Food Delivery USD 2.7-3bn USD 13-14bn ~36%

90.0
E-Health USD 1.5bn USD 12-16bn 50-60%
Other large use cases are travel, bill payments, EdTech,

FY21 FY26P
amongst others
Source: Industry data
Looking at the overall consumer internet opportunity it is expected that BNPL would
have an addressable market of approximately US$300bn by FY26 (not including offline).
A significant portion of this market will actually be addressed by BNPL, driven by
consumer’s growing aspirations and need for convenience.
Chart 47: BNPL (in India) is expected to grow ~15 times in the next five years and become a large share
of the consumer internet market
FY21 FY26E
Consumer Internet
~3.5x Market USD
300+bn
Consumer Internet
Market USD 90bn ~6.0x Credit Based
Online Payments
USD ~70-80bn
Credit Based
Online Payments
USD 10-15bn 15.0x
BNPL BNPL
USD 3- Including some USD 45-50bn
3.5bn share from offline
merchant as well
Source- Industry data, I-Sec Research
42
India had only 30-35mn unique credit card users currently implying credit card
penetration of 3.5%, significantly lower than 65-80% for developed countries and >20%
for China. This represents a huge consumer credit gap and a significant headroom for
growth for credit card as well as other credit instruments. We expect BNPL user base
to grow exponentially from 10mn to 80-100mn users by FY26, surpassing the unique
credit card user base. Growing user base and expanding merchant use cases will drive
the market to reach >US$50bn in disbursals by FY26 from US$3.-3.5bn in FY21. The
penetration of lending through BNPL in overall merchant digital payments is forecast to
rise from 1% in FY21 to >3% by FY26.
Chart 48: India’s BNPL market is on track to grow to >US$50bn by FY26 driven by user growth
BNPL market (deferred payments+shopping EMI) User Base in India
45-50
Loan Disbursals/GMV in USD bn Mn. Unique users for each mode
80-100
BNPL user base 70-75

to surpass cards
user base
CAGR
>80%
30-35
10-15
3.3
<0.5 FY21 FY26
FY18 FY21 FY22P FY23P FY24P FY25P FY26P Credit Card Users BNPL Users

The BNPL disbursals mentioned here refer to disbursals only from digital-first platforms including deferred payment, shopping EMI solutions. BNPL
disburals from legacy lenders are excluded
MSME lending
In India, ~20% of loans required by MSMEs are met by the formal sector, 40% by the
informal sector and there is still 40% credit gap to be met for the MSMEs. Digital lenders
have started to address this gap. Today, digital lending market captures less than 1%
of TAM, indicating much of the market is still untapped. MSME lending is set to become
approximately US$600bn opportunity by FY26.
Chart 49: MSME lending market is set to become ~US$600bn opportunity

700
600
600
500
400
($ bn)
375
300
200
100
0
FY2021 FY2026F
43
Insurance digital distribution
The online insurance market consists of direct online sales by insurance companies and
online sales by insurance distributors.
 Online insurance distribution model: This model focuses on aggregation of demand.

It is fully digital and unassisted and provides consumers an end-to-end online
experience.
 SAAS for agent aggregation (SFAA) – In this model, SFAA players on board
individual agents on their digital platform to interact with consumers and sell partner
insurers products. These agents collate the data and upload it on digital platforms,
helping insurers to issue policies digitally.
In India, while online insurance distribution model exists for some protection products,
a hybrid model with call centre executives calling to aid is also prevalent.
Further, of this market, digital insurance marketplace occupied 54.3% share in total
online insurance market in FY20. Going forward, the share of online insurance is
expected to improve significantly due to rapid digital adoption.
Based on Frost & Sullivan Analysis, insurance digital distribution is currently 1%

(Rs73bn) of total premium compared to 13.3% for USA and 5.5% for China.
Accordingly, if we assume total premium to grow at a CAGR of 12% for next 6 years
and expect penetration to improve from 1% to 2%, total online insurance market can be
Rs288bn of which online insurance distribution channel, which is currently 54%
increasing to 60%, online insurance distribution market can be Rs173bn by FY26.
Broking market size

Equity investments are expected to witness strong growth backed by the increased
accessibility brought by platforms going digital with active demat accounts increasing to
~113mn by FY26 from 55mn in FY21, leading to equity investments / year (for individual
investors) increasing from US$990bn to US$ 2.2trn.
ICRA expects industry aggregate broking income of Rs290-300bn in FY22. Growing

retail share along with increased interest and other fee income are expected to support
profitability. Accordingly, if we assume broking industry will witness growth at 10%
CAGR, it can generate revenues of Rs404bn by FY26.
MF distribution market
As on Mar’21, retail AUM of mutual fund assets stood at Rs17.3trn. Of which Rs3.5trn
was direct and distributed assets were Rs13.8trn. Based on AMFI, national distributors
earn a commission of 0.77% on distributed AUM.
Factoring 15% CAGR, individually distributed AUM is expected to reach 34.8trn by

FY26, assuming direct mix to improve further from 20% to 30% over the next four years,
distributed assets will be 24.6trn (70% of Rs34.8trn). If yields were to moderate from
current 0.77% of national distributors to 0.6% in FY26, estimated market size could be
Rs146bn.
44
Table 25: Market sizing
Online insurance distribution market Rs173bn
Brokerage market Rs404bn
MF distribution commission market Rs146bn
Wealth management
Digital brokers have seen tremendous growth as compared to their offline counterparts,
driven by discount brokerage business model, superior app experience and customer
support. Over the next 5 years, capital market participants are expected to more than
double from the current 40mn and investment in Indian equities and mutual fund is
expected to increase by 2.6 times reaching US$1.2trn in FY26 from US$468bn in FY21.
Gold
Yearly investment in gold is expected to increase from US$25bn in FY21 to US$41bn
by FY26.
45
Initial progress of financial services is encouraging
Adoption rate for lending products amongst MTUs has gathered pace with >4% availing
Paytm Postpaid, ~0.3-0.4% seeking personal loans and >4% of merchants with Paytm
device resorting to merchant advance.
In Q3FY22, it disbursed 4.3mn of Paytm Postpaid loans with an average ticket size of
Rs2,750, thereby, disbursing Rs11.9bn. It has witnessed strong growth in new user sign
ups and the user base has now crossed 3mn (>4% of MTUs). Over 30% of monthly new
sign-ups are new to credit users.
Cross-selling effectiveness is demonstrated in case of PL as 50% of loans are disbursed

to its existing postpaid users. In Q3FY22, personal loans were availed by 60k
consumers with an average ticket size of Rs86k, thereby, translating to PL disbursement
of Rs5.2bn.
More than 60k merchants have availed loans constituting 3% of merchants with Paytm
devices (2mn). Also, repeat loans have witnessed strong uptick, with 25% merchants
having taken a loan more than once. As compared to less than 10% merchant availing
EDC or soundbox, we expect 20-25% to shift to device. Eligibility (whitelisting) for device
merchants will be as high as 25-30% as flow of transaction traffic and stickiness/loyalty
is better.
It has already sold 31.5mn cumulative attachment products and insurance policies to
11.3mn unique insurance customers. Paytm Insurance Broking Private Limited currently
has direct integration with 47 insurance companies in India.
It has over 1.3mn consumers for direct mutual fund investments. As of March 31, 2021,
it had 208k equity trading accounts. It had 74mn investors who have used its digital gold
service since launch in April 2017.
Consumer lending
 Paytm Postpaid is a ‘buy-now-pay-later’ product that provides checkout financing
to consumers. With 1-click payment and dynamic convenience fee for every user,
the product provides a uniquely flexible payment. The Paytm Postpaid service has
a credit limit of up to Rs60k for a maximum of 30 days, offered in partnership with
two leading NBFCs (Clix and Aditya Birla Capital, Hero Fincorp) with an instant
credit line for various payments to Paytm app users. In Jan’22, it announced
partnership with Fullerton India to further enhance credit offerings for its consumers
and merchants. Merchant acceptance continues to grow and the facility is now
available over 3.5mn online and offline merchants. Users can use Paytm Postpaid
on the Paytm app for bill payments and ticketing use cases, shopping on mini-apps
or Paytm Mall, and for payments on other third-party apps. Multiple payment options
like UPI, debit card and internet banking are already available to repay a postpaid
bill. To add another level of flexibility to users’ payment experience, postpaid service
also enables conversion into EMIs, payable alongside nominal interest rates.
 Paytm earns revenue in the form of a sourcing fee, convenience fee and collection
fee from financial partners. MDR from merchants on postpaid is recorded in
payment services and not in lending business. The space is getting extremely
competitive with banks (HDFC Bank Pay Later, Axis BNPL), e-commerce players
46
(Amazon, Flipkart) as well as fintech players offering BNPL nature products. Also,
as it gains scale, take rates are bound to moderate to as low as 2.8%. During covid
pandemic, disruption in collection had impacted the take rates and collection fee is
linked to collection efficiency. Sourcing and convenience fee typically flow at the
time of disbursements itself. For every month of outstanding, corresponding late fee
is added. Default fees in case of late payment varies depending on the outstanding
amount and is charged for every month of delay. For outstanding of Rs2.0-5.0k,
Rs250 of default fee is charged. Paytm Postpaid also allows customers to convert
spending into EMIs, payable alongside nominal interest rates.
 Personal loans: Through its financial partners, Paytm users can avail fully-digital
cash out loans, especially targeted towards ‘new to credit’ users, and which can be
instantly availed at any time for instant fund requirements and discretionary spends,
with a loan size range of Rs100-200k. Personal loans would be an up-selling
proposition to target base of regularly transacting consumers with consistently
higher use cases or postpaid customer having demonstrated decent track record of
repayment/prepayment.
 Credit cards: Paytm offers co-branded credit cards in partnership with Citibank,
SBI and HDFC Bank (tied up recently in Q3FY22). Card management services
including real-time transaction history, spend analytics, ability to change credit limits
by type of transaction and blocking/unblocking of cards are available on Paytm App.
Paytm can cross-sell credit cards to its 2-3% of MTUs over the next 3-4 years. It
earns upfront distribution fee per card issued as well as sharing on card spend
depending on portfolio behaviour of customers sourced through them. Paytm also
earns incentives from the card networks for driving adoption of cards. Revenue from
credit card partnerships is recorded in cloud revenue.
Merchant lending
Paytm merchant partners can avail credit facilities, offered by Paytm financial partners,
under ‘merchant cash advances’ through its ‘Paytm for Business’ app. These business
loans are unsecured in nature and credit-scored based on the transaction history of the
merchant. The entire journey of availing loans is completely digital with application by
merchants in a few minutes on the app, and get instant disbursal based on an agreed
policy with the financial institution partner.
Wealth
Paytm provides wealth management services to its consumers through Paytm Money.
 Mutual funds: Paytm Money offers zero commission direct mutual funds to its
consumers. It has over 1.3mn consumers, for direct mutual fund investments.
 Equity trading: As of March 31, 2021, it had 208k equity trading accounts.
 Gold: As of March 31, 2021, it had 74mn investors who have used its digital gold
service since launch in April 2017, with many opting for gold systematic investment
plans as a regular saving option.
Revenue flows from consumer fees, such as upfront account opening fee, transaction
fee depending on transaction type and volumes, and an annual subscription fee. In
addition, in Paytm Money, Paytm earns float income on funds that customers keep in
their brokerage accounts.
47
Insurance and attachment products
Paytm, in collaboration with its insurance partners, offers (i) attachment products such
as movie and travel ticket cancellation protections based on user engagement, and (ii)
its subsidiary, Paytm Insurance Broking Private Limited, a registered insurance broker
with IRDAI offers an insurance marketplace.
Its associate company, Paytm Insuretech Private (PIT) has entered into an agreement
to acquire the entire shareholding of Raheja QBE General Insurance Company wherein
IRDA approval is still pending to consummate the deal.
Scale will be key to profitability

We estimate that 18-19mn consumers (15% of MTUs) and 1.2mn merchants (>10% of
merchants with Paytm devices and >3% of total merchant base) will avail financing
product through Paytm platform by FY26E. We expect consumer loan disbursals
(postpaid + PL) to grow more than 7x by FY26E to 110mn loans and merchant loan
disbursals to be 10x to 1.2mn.
Small value loan is its strength and differentiator and we expect postpaid average ticket
size of Rs3k, personal loan ticket size of < Rs100k and merchant loan ticket size of
Rs160k. This translates to disbursements of Rs614bn by FY26E (including Rs425bn of
consumer loans and Rs189bn of merchant loans). Currently, we believe, 50% disbursals
are towards postpaid and balance is equally distributed between personal and merchant
loans. We expect the proportion of postpaid to be around 53-55% and merchant lending
proportion will inch up to >30%.
In the lending business, Paytm generates revenue in the form of distribution/sourcing
fees, convenience fees and collection fees. We expect some moderation in take rate
with rising competition as well as improving penetration. Take rate for postpaid product
is anticipated to come off to 2.5% and for personal loan and merchant loan at 4.8-5.0%.
We, thereby, forecast financial services revenue to grow at a CAGR of 57% over FY22E-
26E, comprising 18% of operating revenue (from <5%/<10% in FY21/FY22E).
Chart 50: Financial services revenue to grow at Chart 51: BNPL and merchant lending to account
57% CAGR constituting 18% of revenue for one-third each
30.0 Financial services revenue Financial service revenue break-up
27.1 100%
14% 12% 10% 9% 8%
25.0 9% 9% 8%
9% 10%
20.2 80%
20.0 22% 28% 31% 34%
21%
60%
14.0
15.0
(Rs bn)
25% 25%
21% 18% 16%
40%
10.0 8.4
32% 32% 34% 35%
4.4 20% 31%
5.0
0.6 0.9 1.3
- 0%
FY22E FY23E FY24E FY25E FY26E
FY25E
FY22E
FY23E
FY24E
FY26E
Q1FY22
Q2FY22
Q3FY22
BNPL Service Instant personal loan service

Merchant loans Insurance services
Wealth management
48
Paytm Postpaid: We expect postpaid lending adoption rate to rise to 15% of MTUs by
FY26E and with Rs3k average ticket size, postpaid disbursements are forecast at
Rs335bn, growing at a CAGR of >67% over FY22-26E. We estimate postpaid revenue
to grow at 62% CAGR over FY22-26E, thereby constituting 35% of lending business
revenue.
Chart 52: Postpaid adoption assumed at 15% and Chart 53: Pospaid revenue to grow at 62% CAGR
take rates of 2.8-3.2%
16.0% Paytm Postpaid business dynamics 3.0 3.1 400.0 9.4 10
3.0
14.0% 3.0 350.0 Revenue CAGR 62% 9
2.9
12.0% 2.9 8
2.8 2.9 300.0 6.8
10.0% 2.8 7
2.8
8.0% 250.0 6
2.6 2.7
(Rsbn)
6.0% 4.5
200.0 5
(Rs bn)
4.0% 2.6
4
12.0%
15.0%
150.0 2.7
4.9%
4.2%
3.2%
6.5%
3.1%
9.0%
3.1%
2.8%
6.7%
3.0%
2.0% 2.5
3
100.0
0.0% 2.4 1.4 2
Q2FY22
Q3FY22
FY22E
FY23E
FY24E
FY25E
FY26E
50.0 0.2 1
8.1 42.8 85.0 144.7 229.7 334.1
- 0
Pen etr atio n in MTU Ser vice ta ke rate FY21E FY22E FY23E FY24E FY25E FY26E
Avg. ticket size ('000) (RHS) BNPL disbursements BNPL revenue (RHS)
Personal loans: In personal loans, penetration is currently not even 0.4% of MTUs but
we expect adoption rate to rise to 0.8% by FY26E. With <Rs100k average ticket size by
that period, PL disbursements is forecast at Rs90bn, growing at a CAGR of 49% over
FY22-26E. Paytm earns revenue in the form of a sourcing fee, convenience fee and
collection fee from financial partners. Assuming take rates a tad below 5%, we estimate
PL revenue to grow at >41% CAGR over FY22-26E, thereby constituting ~16% of
lending business revenue.
Chart 54: Personal lending adoption assumed at Chart 55: Personal lending revenue to grow at
<1% and take rates of 4.8-5.0% >41% CAGR
7.0% Personal lending business dynamics 100.0 100.0 5
96.8 Disbursement CAGR 49% 4.4
6.0% 94.0
95.0 80.0 3.6 4
91.2
5.0%
88.6 70.0 4
90.0 2.9
4.0% 86.0 86.0 60.0 3
84.8
(Rsbn)
3.0% 85.0 50.0 2.1 3

(Rs bn)
2.0% 40.0 2
0.8%
0.7%
0.7%
0.6%
0.4%
80.0 30.0 1.1 2

0.1%
0.1%
6.0%
5.7%
5.3%
5.0%
4.8%
1.0%
20.0 1
0.0% 75.0
10.0 0.2 1
Q2FY22
Q3FY22
FY22E
FY23E
FY24E
FY25E
FY26E
3.5 18.2 37.2 54.5 73.2 90.7

- 0
Avg. ticket size ('000) (RHS) Per son al l oan disbursements Per son al l oan revenue (RHS)
49
Merchant lending: We expect adoption of merchant cash advances to grow 10x to
1.2mn merchants and with average ticket size of Rs150-160k, we forecast
disbursements of Rs189bn in this segment. Take rate of 5% would translate into
revenue of Rs9bn equivalent to 34% of lending business revenue.
Chart 56: Adoption of merchant cash advances to Chart 57: Merchant lending revenue to grow
grow 10x exponentially
Merchant lending business dynamics 200.0 9.1 10
7.0% 200
160 180.0 Revenue CAGR 77% 9
6.0% 146 153
135 132 139 160.0 8
5.0% 150
119 140.0 6.2 7
4.0%
100 120.0 6
(Rsbn)
3.0% 100.0 5
(Rs bn)
3.9
3.1%
2.0% 50 80.0 4
2.3%
0.1%
0.4%
6.2%
0.8%
1.5%
5.3%
5.0%
4.8%
0.1%
5.8%
1.0% 60.0 3
1.9
0.0% - 40.0 2
0.9
Q2FY22
Q3FY22
FY22E
FY23E
FY24E
FY25E
FY26E
20.0 0.3 1
6.0 15.1 32.3 73.7 125.8 189.3
- 0
Pen etr atio n in total n o. of mercha nts
Ser vice ta ke rate FY21E FY22E FY23E FY24E FY25E FY26E
Avg. ticket size ('000) (RHS) Merchant loan disbursements Merchant loan revenue (RHS)
Source: Company data, I-Sec research. Source: Company data, I-Sec research.
Chart 58: Lending business disbursements to grow at 68% CAGR

700.0 22.8 25
600.0 Revenue CAGR 61%
20
16.6
500.0
400.0 15
(Rsbn)
11.3
(Rs bn)
300.0 10
6.6
200.0
3.4 5
100.0
0.7
17.6 76.1 154.5 272.9 428.7 614.1
- 0
Len ding business di sbu rse me nts Len ding business re ven ues
Source: Company data, I-Sec research.
50
Chart 59: BNPL to constitute more than half of Chart 60: BNPL and merchant lending to constitute
disbursements major chunk of revenues
Lending - Disbursements break-up Lending servie revenue break-up
100% 100%
34% 20% 21% 27% 29% 31% 49% 28% 28% 35% 37% 40%
90% 90%
80% 80%
70% 24% 70%
24%
60% 20% 17% 15% 60%
20% 32% 32%
50% 50% 26% 22% 19%
56% 55% 54% 54%
53%
40% 46% 40% 26%
40% 40% 40% 41% 41%
30% 30%
20% 20% 24%
10% 10%
0% 0%
BNPL Personal Loan Merchant loan BNPL Personal Loan Merchant loan
Source: Company data, I-Sec research. Source: Company data, I-Sec research.
Insurance distribution: We estimate insurance customers on Paytm’s platform will rise

to ~0.7% of MTUs by FY26E and this product stream will contribute 8-9% of financial
services revenues.
Wealth and equity broking: The wealth-tech is extremely competitive with several
dedicated online broking/investment platforms to compete with. Thereby, adoption rate
will be gradual and we forecast 1.2% of its MTUs availing this service and with ARPU
per month of Rs120, we expect it to generate revenue of Rs2.1bn constituting 8-9% of
financial services revenue.
Chart 61: Operating revenue to grow at >30% Chart 62: Financial services and payment services
CAGR to merchant revenue pie to expand
180 Revenue from operations Revenue from operations break-up
153 100%
160 8% 15% 14% 15%
16% 15% 16%
140 12%
126 80% 9% 9% 9% 8% 8% 7%
120 5% 9% 11% 14%
22% 16% 18%
97 36% 39%
100 60% 40%
4% 40% 40% 40%
(Rs bn)
74 23%
80
40%
60 17% CAGR 52
35%
40 32 33 28 20% 31% 29%
26% 22% 21% 19%
20
0%
- FY20 FY21 FY22E FY23E FY24E FY25E FY26E
FY19
FY20
FY21
FY22E
FY23E
FY24E
FY25E
FY26E
Payment to consumers revenue Payment to merchants revenue

Financial service revenue Commerce service revenue
Cloud service revenue Other operating income
51
Contributing margin to edge higher; visibility on positive EBITDA

post FY26E
Over the past few years, Paytm has been able to reduce its payment processing charges
and marketing and promotional expenses. With scale up of financial services and cloud
services growth (that are relatively higher margin products compared to payments and
commerce), contribution margin will edge higher in coming years.
Levers available to plug more efficiency in payment processing

charges
 Payment processing charges are paid to banks for routing transactions through their
payment gateways, and are dependent on category of merchant, payment
instrument used by the consumer, size and number of transactions processed and
network through which the transaction is routed.
 Payment processing charges (% of GMV) have reduced from ~1.0% in FY19 to
0.35% in 9MFY22. We primarily attribute this to: 1) Technology-driven optimisation
of transaction routing, 2) higher share of UPI in instrument mix, 3) improvement in
transaction rates from banks owing to our increasing scale. These factors are
expected to play favourably in coming years as well and we forecast payment
processing charges to settle around 0.22% of GMV. This clearly suggests that as
compared to a drag of 30bps in payment business net take rate in FY19, it can be
accretive to the extent of 8bps.
Chart 63: Payment processing charges have levers for better efficiency
Payment processing charges trend based on estimates
70%
69%
68%
80% 1.10%
70%
55%
0.90%
51%
60% 0.98%
49%
48%
46%
44%
50%
0.70%
33%
40% 0.75%
23%
23%
30% 0.50%
16%
20% 0.48%
0.24% 0.30%
10%
0%
0.32% 0.29% 0.26%

0% 0.22% 0.10%
-10%
-15%
-20% -0.10%
Growth % of revenue % of GMV (RHS)
52
Chart 64: From a drag of 30bps in payment net take rate, it will be accretive
going forward
1.50% 23.4 25.0
0.98% 19.2
20.0
1.00% 0.75% 14.2
0.48% 15.0
0.50% 0.32% 0.29% 0.26%
0.69% 0.24% 0.22% 10.0
0.59%
0.49%
0.40% 0.37% 0.34% 0.32% 0.29% 5.0
0.00%
0.6 7.1 10.7
-
-0.50%
-5.0
-4.9
-1.00% -6.9 -10.0
Net payment revenue (Rs bn- RHS) Payment take rate
Payment processing charge as % of GMV
Growth and engagement levels contingent on marketing and

promotional expenses
 Marketing and promotional expenses predominantly comprise digital marketing,
brand marketing, sponsorships, cashback, Paytm points and other promotional
expenses, given to consumers or merchants for incentivising acquisition and
retention. Some of its marketing and promotional expenses, such as cashbacks, are
netted from its total revenue in certain cases.
 Marketing and promotional expenses engulfed the entire operating revenue in FY19.
However, with reduction in customer acquisition costs as well as retention costs it
came off to 18-19% of operating revenues in FY21/9MFY22.
 To grow customer and merchant base, it will undoubtedly incur additional cost.
Nonetheless, we are confident that it will be able to increase customer engagement
at a lower cost, and avail the increasing share of total cashback funding from
partners, primarily banks, that will further drive it lower to 15-17% of operating
revenue.
Chart 65: To grow and engage customers, additional marketing spend is must
Marketing & promotional expenses trend based on estimates
105%
1.2 1.90%
1
1.40%
0.8 1.49%
84%
43%
0.6 0.90%
34%
26%
22%
19%
19%
18%
17%
0.4
16%
15%
14%
0.40%
0.2 0.46%
0 0.13% 0.11% -0.10%
0.10% 0.09% 0.08% 0.08%
-0.2 -0.60%
-59%
-62%
-0.4
-1.10%
-0.6
-0.8 -1.60%
Growth As %age of revenue As %age of GMV (RHS)
53
Employee cost; ESOP a huge drag
 Employee costs have compounded at a rate of >40% over FY19-9MFY22 as Paytm
has invested in its technology, sales team and built-out financial services vertical. It
has also moved some of its functions from sub-contracted staff to its own
employees, to ensure better services and efficiency. It has 2,470-member
engineering, product and technology team. The rate of attrition, excluding the KMPs,
was relatively high at 43.8% / 55.6% for FY20 / FY21, respectively. Excluding the
attrition rate for Paytm Services Private Limited, this attrition rate has been ~35%.
Attrition rate in new age fintech space is bound to be higher in lower and middle
management and the cost will remain elevated to retain the requisite talent base.
 Employee cost also included share based payment charges on the basis of ESOP
granted/vested, exercise price, vesting period and performance and/or service
conditions fulfilled. In 9MFY22, it has granted 27.5mn shares compared to 3.5-
3.9mn granted in earlier years. Given the exercise price of Rs9 and vesting period
of 5 years (in the ratio of 2:24:24:25:25), it has recorded sharp spike in ESOP related
charges at Rs3.7bn in Q3FY22. With continuous vesting of these grants in coming
years, we expect the cost to continue for another 5 years. We are building in annual
ESOP-related charges of Rs10-18bn for next 5 years.
Table 26: Non-cash ESOP charges (estimated) to weigh on reported EBITDA
For ESOPs granted in FY19 230 102
For ESOPs granted in FY20 335 211 94
For ESOPs granted in FY21 918 589 370 164
For ESOPs granted in FY22 8,265 15,949 12,425 7,521 4,015 1,235
For ESOPs granted in FY23 948 1,646 1,146 729 406
For ESOPs granted in FY24 1,090 1,893 1,318 839
For ESOPs granted in FY25 1,254 2,177 1,515
For ESOPs granted in FY26 1,442 2,503
For ESOPs granted in FY27 1,658
Share based payment expense in P&L 9,749 17,799 15,625 11,977 9,680 8,156
Note: ESOP charges estimated on the basis of assumed fair value, allocation across vesting period and ESOPs to be granted in coming years too.
21 mn ESOP granted to Mr. Vijay Shekhar Sharma in FY22 are subject to achievement of certain milestones and to be vested equally in 4
tranches having minimum vesting period of 24 months, 36 months, 48 months and 60 months for each tranche respectively
Table 27: Spike in ESOP charges due to grant of 27.5mn shares in 9MFY22
Apr'21-
FY19 FY20 FY21
Oct'21
ESOP-2008
Total options outstanding as at the beginning of the period 9.89 9.61 7.29 5.36
Total options granted during the year/period 3.72 1.25 - -
Vesting period 4 years 4 years - -
Exercise price of options in ₹ (as on the date of grant options) 9 9 9 9
Options forfeited/lapsed/cancelled during the year/period 2.42 2.29 1.32 0.40
Money realized by exercise of options 14.73 11.19 5.47 49.01
Total number of options outstanding in force 9.61 7.29 5.36 0.69
Total options vested (excluding the options that have been exercised) 3.62 4.13 4.51 0.19
ESOP-2019
Total options outstanding as at the beginning of the period - 1.48 4.67
Total options granted during the year/period 1.63 3.87 27.45
Vesting period 5 years 5 years 5 years
Exercise price of options in ₹ (as on the date of grant options) 9 9 9
Options forfeited/lapsed/cancelled during the year/period 0.16 0.65 1.08
Money realized by exercise of options - 0.21 3.22
Total number of options outstanding in force 1.48 4.67 30.68
Total options vested (excluding the options that have been exercised) 0.09 0.24 0.34
54
Chart 66: Technology, sales and financial services to call for employee addition
140.0%
120.0%
100.0% 119.7%
80.0%
51.8% 53.8%
60.0%
35.9%
40.0%
19.6% 17.0% 15.5%
12.5% 36.5%
20.0% 30.7%
5.5% 2.1%
5.9% 5.9%
0.0%
Employee benefit expense (excluding ESOPs) growth

Employee benefit expense (including ESOPs) growth
Investment in cloud infrastructure required

 Software, cloud and data centre expenses primarily include costs for cloud data and
data centre facilities, costs for technology licenses and technology subscription fees,
and other related expenses. After a nominal growth over FY19-21, it incurred
investments in cloud infrastructure to support growing transaction volumes and
GMV and costs have risen more than 40% in 9MFY22. Going forward, we expect it
to normalise to 10% CAGR over FY22-26E.
Chart 67: Investment required in cloud infra Chart 68: Other fixed cost to grow at 10-12%
45.0% 42.0% 0.4
Growth As %age of revenue
40.0%
0.3 24% 24%
35.0% 21% 34.0%
30.0% 0.2 15%
12% 10%
25.0% 9% 8%
20.0% 16.4% 0.1
0.8% 12.0% 12.0%
12.0% 12.0% 10.0% 10.0%
15.0% 10.0% 10.0% 0
10.0%
5.0% -0.1
-2.9%
0.0%
-0.2
-5.0%
-10.0% -0.3 -24.2%
FY19
FY20
FY21
FY22E
FY23E
FY24E
FY25E
FY26E
Software, cloud and data centre expenses growth

Contribution margin to improve to 40%/46% by FY25E/FY26E

Consequent to improvement in cost ratios and operating leverage benefit with scale, it
will be able to improve its contribution profit and contribution margin. We expect
contribution margin that has crossed the hurdle of being in negative zone in FY19 to a
positive contribution of 13% and 23% in FY21/FY22E has the potential to further
improve to 40%/46% by FY24E/FY26E, respectively.
55
Chart 69: Contribution margin to improve to 40% / 46% by FY24E / FY26E
80 46.2% 60%
40.0% 43.3%
70 35.4%
30.1% 40%
60
50 12.9%
20%
40
-7.2%
30 0%
20 -20%
(Rsbn)
10 4 16 26 39 55 71
- -40%
-10 -20 -2
-60%
-20
-61.8%
-30 -80%
Contribution profit (Rsbn) Contribution profit margin (RHS)
Some visibility on positive EBITDA margin post FY26E

Over the past 3 years, it has substantially improved EBITDA margin from a negative
drag of (135%) in FY19 to (50%) in FY22E. We expect improvement trajectory to
continue and there is some visibility of it getting into positive territory post FY26E. Annual
non-cash ESOP charges of Rs10-18bn over FY22-26E will drag reported EBITDA.
Adjusted EBITDA margin (excluding ESOP charges) will turn positive by FY26E.
Chart 70: Adjusted EBITDA to turn positive by FY26E; ESOP charges to drag
reported EBITDA
50% 0.5%
0.0%
5%
0.0%
0% 0.0%
-75%
-0.1% 0.0%
-80%
-0.2% -0.5%
0%
-1%
-9%
-10%
-0.4%
-18%
-25%
-29%
-50% -1.0%
-130%
-0.8%
-135%
-42%
-48%
-59%
-63%
-1.5%
-100%
-1.8% -2.0%
EBITDA Margin
-150% EBITDA Margin (excluding ESOP expenses)
-2.5%
EBITDA as % of GMV (RHS)
EBITDA (excluding ESOP expenses) as % of GMV (RHS)
56
V. Revenue drivers
Paytm derives revenue from transaction, processing, convenience, distribution and
collection fees.
Table 28: Key revenue drivers across products and services

Offering on the Paytm App Services offered by Revenue Model
Payment Services
Recharge and Bill Payments Through supply from own merchant network and payment bank (PPBL) Merchant: Payments processing fee and
(Bharat Bill payment (BBPS)) rentals for devices deployed
Money transfer Payment Bank (Associate) Consumer: Convenience fees in certain select
Pay (in-store or offline) Paytm (One 97 Comm. (OCL)) cases
Payment instruments from third parties (cards), associates (e.g.
Payment Bank) and partners
Commerce and Cloud
Travel ticketing OCL, through supply from own merchant network Consumer: Convenience fees in certain select
Entertainment ticketing OCL, through supply from own merchant network and Wasteland cases
Entertainment Private Limited (Paytm Insider), a wholly owned Merchant: Payments processing fee,
subsidiary of OCL marketing fee and advertising fee (including
Mini-apps Store Developer partners (on-boarded by OCL) for Mini-apps) and other fees
Includes Paytm E-commerce Private Limited (“PEPL” or “Paytm Mall”)’s
mini-app for online shopping (OCL has no equity stake in PEPL)
Games Paytm First Games Private Limited (subsidiary) Consumer: Platform fee
Not consolidated in OCL Merchant: Hosting commission
Paytm First Subscription OCL, in collaboration with partners Consumer: Recurring subscription
Merchant: Distribution fee (select)
Financial Services
Digital Banking PPBL (associate), pursuant to a business cooperation agreement with Payment gateway charges and convenience
(including Paytm Wallet, OCL fee
FASTag) Fixed deposit is offered by PPBL in collaboration with a partner bank
Lending OCL in collaboration with financial partners Banks/NBFCs: Sourcing and collection fee
Wealth Management Paytm Money Limited (wholly owned subsidiary) Consumer: Brokerage and fees
Digital gold offered by OCL in collaboration with a partner
Insurance Attachment products: by OCL in collaboration with partners Insurance Companies: Brokerage
Market place: by Paytm Insurance Broking Private Limited (subsidiary)
For payment services, it generates revenues from:

 Transaction fee charged to merchants based on a percentage of GMV,
 Consumer convenience fees charged to consumers for certain types of transactions,
 Recurring subscription fees from merchants for certain products and services such
as Paytm EDC and soundbox.
UPI transaction that dominates merchant GMV is not MDR bearing as per regulatory
requirement. Fees, thereby, is largely earned on transactions completed through credit
card, wallets (1.99%) or through non-RuPay debit card or through net banking.
With rising component of non-MDR bearing UPI transactions from <5% to almost
50%, payment take rates have contracted from 74bps to 38bps. Proportion of zero
MDR UPI is estimated to rise to 62% and there will be further pressure of 4-5 bps
on take rates of MDR bearing instruments.
57
Chart 71: Transaction and fee flow for payment gateway
MDR
Step 1: Customer initiates
a transaction Payment ₹ Merchant
Customer
Gateway Step 7: settles the t ransaction
amount wit h merchant
₹
Step 2: Transaction
passed to acquirer Step 6: Funds Transfer Step 5: Funds Transfer
Acquirer ₹ ₹
Network Issuing Bank
Bank
Step 3: Authorization Step 4: Authorization by
passed to n e tw ork issuing bank
Transaction
₹ Cost/revenue Eg issuer of credit card, debit card, wallets etc
Source: I-Sec research
Chart 72: Transaction and fee flow for UPI
Payer PSP Payee PSP
UPI/NPCI
Step 1:
Transact ion Step 2: Step 4: Money transfer
initiated by Debit transaction Account is credited and acknowledgment
entering amount sent t o UPI bank responds t o UPI shared
& Payee VPA
Remitter Step 3:UPI sends the Beneficiary

Bank t ransaction t o beneficiary
Bank
bank
Revenue earned by Cost incurred by
P2M transactions NPCI (Switching fee) Payee PSP
P2P transactions Beneficiary bank (Interchange ), Payer PSP,NPCI (Switching fee) Remitter Bank
Source: I-Sec research.
For financial services, Paytm’s involvement is with respect to product creation,

distribution and collection. Revenue is, therefore, generated through
 Sourcing fees – typically earned on disbursements

 Collection fees – linked to collection efficiency
 Distribution of credit card – upfront distribution fees of (Rs2.5-4.0k) and share in
annual spending (a quarter of interchange would be flowing to Paytm)
 Insurance broking – commission on premium for insurance product sold through its
platform
 Equity broking – upfront account opening, transaction fees, annual subscription fee.
In Paytm Money, it earns float income on funds kept in brokerage accounts.
58
Chart 73: Transaction and fee flow for BNPL
Interchange Fee
Card-issuing financial Issuer and acquirer settle BNPL Provider’s financial

Institution (‘issuer’) Institution (‘Acquirer’)
BNPL
Provider
Consumer Marchant
Goods / Services
Source: I-Sec research.
Our estimate of lending product take rates

 For postpaid product, we anticipate take rates of 2.5% (1.5% consumer
convenience fees + 0.75% late payment charges + 0.75% merchant MDR).
Chart 74: Merchant MDR dominates revenue for global BNPL players
90 Share of revenue from merchants (%)
80
70
60
50
(%)
40
30
20
10
46 50 57 67 71 84 85
0
Openpay Zip Affirm Klarna Zest Afterpay Sezzle
Source: I-Sec research
 For personal loans and merchant loans at 4.8-5.0% (3%

processing/distribution fee + 1.0-1.2% servicing fees + 0.5-1.5% collection fee
based on pre-delinquency management and post delinquency efficiency).
59
For travel, entertainment ticketing, and other commerce businesses, revenue is typically
linked to a percentage of transaction value in the nature of:
 Transaction fee from merchants
 Convenience fee from customers
 Subscription fee for software and cloud services
 Advertising fee based on type and scale of campaign.
Table 29: Fees/charges for various businesses

Payment charges (Merchant discount rate)
Payment instrument Online Payments (SME) In-store payments
UPI-Standard 0%
0%
UPI-Subscription Rs5-65 per mandate for annual subscription plan
Paytm Wallet 1.99% 0%
Credit card 1.99% -
Debit card-Rupay 0% 0%
0.4% for below Rs2,000 -
Debit card-Mastercard & VISA
0.9% for above Rs2,000 -
Netbanking 1.99% -
International PG 2.90% -
Payment money charges (wealth management)
Instrument Brokerage charges
Stock (Delivery) Rs0.01/- per executed order
Stock (Intra-day) 0.05% of turnover or Rs10/- per executed order, whichever is lower
Options Rs10/- per executed order
Futures 0.02% of turnover or Rs10/- per executed order, whichever is lower
Paytm payment bank saving rate trend
Till 08-11-2019 4.00%
09-11-2019 to 0.8-05-2020 3.50%
09-05-2020 to 09-06-2020 3.00%
10-06-2020 to 22-05-2021 2.75%
From 23-05-2021 2.50%
BNPL service
Outstanding amount Late fee (per month)
Up to Rs100/- Rs0/-
Rs101 to Rs250/- Rs10/-
Rs251/- to Rs500/- Rs25/-
Rs501- to Rs1,000/- Rs50/-
Rs1,001 to Rs Rs2,000/- Rs100/-
Rs2,001/- to Rs5,000/- Rs250/-
Rs5,001 and above Rs500/-
60
VI. Related-party transactions

Income from related entities constitute 30-35% of its operating revenue and related-
party expenses incurred or reimbursed are equivalent to 35-40% of operating income.
Two key related entities where the revenue and cost are associated include Paytm
Payments Bank and Paytm First Games.
One97 Communications owns 49% equity interest in Paytm Payments Bank and
Promoter Mr. Vijay Shekhar Sharma holds the remaining 51%. Many payment
instruments or channels such as Paytm Wallet, Paytm UPI, NACH, Paytm FASTag and
fixed deposits are offered on its platforms by Paytm Payments Bank (PPB).
Almost 45-50% of payment revenues are earned by rendering services to PPB or from
reimbursement of expenses that Paytm incurs on behalf of the bank. Paytm earns this
revenue in capacity of payment gateway service provider or technology partner or
distributors of PPB products or marketing on behalf of PPB. While loading money into
wallet or issuance/usage of FASTag (products housed in PPB), the bank is required to
share revenues with Paytm. Similarly, bank payment products are used for third-party
transaction and Paytm earns an MDR that needs to be shared with issuing bank (PPB
in case of wallet). Similar to revenues, 45-50% of payment processing charges are
incurred on behalf of PPB.
Table 30: 45-50% of payment revenues and charges are related to PPB
Related party transactions FY19 FY20 FY21
Paytm Payment Bank (Rsmn)
Income for
Services rendered 9,277 8,752 8,634
As %age of consolidated payment revenues 59% 49% 44%
Reimbursement of expenses incurred on behalf of payment bank 1,466 945 617
Interest income 39 26 14
Other income - - 122
Sale of PP&E - 186 1
Total Income 10,782 9,909 9,388
Expenses for
Payment processing charges 9,183 9,690 9,468
As %age of consolidated processing charges 41% 43% 49%
General expenses 71 1,091 374
Total Expenses 9,254 10,781 9,842
Net income/expenses 1,528 -872 -454
Paytm First Games (Rsmn)
Income for
Services rendered 14 88 204
As %age of consolidated commerce & cloud revenues 0.09% 0.79% 2.94%
Reimbursement of expenses incurred on behalf of payment bank 23 42 238
Interest income - - 20
Gain on sale of business 422 - -
Total Income 459 130 462
Expenses for
Expenses reimbursed - - 87
Total Expenses - - 87
Net income/expenses 459 130 375
61
Table 31: More than 50% of PPB’s revenue flows from third party sources
Rs mn FY19 FY20 FY21
Revenue 16,682 21,106 19,875
-Paytm 9,183 9,690 9,468
-Other than Paytm 7,499 11,416 10,407
PAT 649 27 179
There are apprehensions that revenue of Paytm would have been lower on a net basis
if PPB was to be consolidated. However, there is a component of revenue in PPB that
is not related to Paytm but is with third party, which would have also got consolidated.
Therefore, on a net basis, revenue impact would have been broadly neutral.
Table 32: On a net basis, revenue impact would be neutral, if consolidated

Rsmn FY19 FY20 FY21
Paytm’s payment revenue (PPB not consolidated) 15,711 17,778 19,808
Revenue for rendering service to PPB 9,277 8,752 8,634
PPB’s Gross Sales 16,682 21,106 19,875
PPB's processing revenue earned through Paytm 9,183 9,690 9,468
Total payment revenue if paytm bank was consolidated 13,933 20,442 21,581
Table 33: 30-35% of revenues and 35-40% of expenses are from related parties
Amount (Rsmn) As a %age of revenue from operations
Income
Rendering of services to related parties 9,291 8,860 8,842 28.8% 27.0% 31.6%
Reimbursement of expenses incurred on behalf of related parties 1,489 987 855 4.6% 3.0% 3.1%
Interest income earned from related parties 39 26 36 0.1% 0.1% 0.1%
Other income earned from related parties - - 122 - - 0.4%
Sale of property, plant & equipment to related parties - 186 1 - 0.6% 0.0%
Gain on Sale of Business 422 - - 1.3% - -
Total income 11,241 10,059 9,856 34.8% 30.7% 35.2%
Expenses
Payment processing charges 9,183 9,690 9,468 28.4% 29.5% 33.8%
General expenses 581 1,884 1,453 1.8% 5.8% 5.2%
Expenses reimbursed to related parties - - 87 - - 0.3%
Total expenses 9,764 11,574 11,008 30.2% 35.3% 39.3%
Net income/expense 1,477 -1,515 -1,152 4.6% -4.6% -4.1%
62
VII. About the company

Paytm is India’s leading digital payments and financial services company, which is
focused on driving consumers and merchants to its platform by offering them a variety
of payment use cases and then cross-selling them higher margin financial services
products. The platform has over 350mn users and 25mn merchants. Paytm offerings
include:
 Payments to consumers and merchants

 Financial services, particularly lending, and
 Other merchant services (Commerce and Cloud).
The company provides consumers with services like utility payments and money
transfers, while empowering them to pay via Paytm Payment Instruments (PPI) like:
 Paytm Wallet
 Paytm UPI
 Paytm Payments Bank Netbanking
 Paytm FASTag and
 Paytm Postpaid - Buy Now, Pay Later
To merchants, Paytm offers acquiring devices like soundbox, EDC, QR and payment
gateway where payment aggregation is done through PPI and also other banks’
financial instruments. To further enhance merchants’ business, Paytm offers merchants
commerce services through advertising and Paytm Mini app store. Operating on this
platform is leveraging, the company then offers credit services such as merchant loans,
personal loans and BNPL, sourced by its financial partners. The company’s mission is
to bring 500mn Indians into the mainstream economy.
Chart 75: Group structure and key related entities
One 97 Communication (Paytm)

Paytm Paytm
Paytm Games Paytm
Payments Financial
First (55% Paytm Insuretech
Bank (49%, Services Paytm
owned via Insurance (32.45%, Paytm Money One97 USA
remaining (48.78%, Services Pvt.
subsidiary - Broking 33.80% by (100%) Inc. (97%)
owned by 51.22% owned Ltd. (100%)
Paytm (100%) Paytm
Paytm by Paytm
Entertainment) founder)
founder) founder)
Note: The above list of subsidiaries and associates is not exhaustive

63
Table 34: Management team
Name & Designation Experience
Mr. Vijay Shekhar Sharma is the Managing Director and Chief Executive Officer of the Company and the
Chairman of the company’s Board. He holds a bachelor’s degree in electronics and communications from
Mr. Vijay Shekhar Sharma, the Delhi College of Engineering. Mr. Sharma is the founder of the company and oversees the company’s
Managing Director, Chief Executive key strategic efforts including engineering, design and marketing. Mr. Sharma has featured in ‘2017 Time
Officer and the Chairman of the 100’, the list of ‘hundred most influential people in the world’ by Time magazine. He has received multiple
Board industry honours such as the ‘Entrepreneur of the Year’ award in 2018 by All India Management Association,
‘Entrepreneur of the Year’ at ET Awards for Corporate Excellence’ in 2016 and ‘GQ Man of the Year’ in
2016.
He has been associated with Paytm since October 3, 2016. He holds a bachelor’s degree of science in
Mr. Madhur Deora, President and
economics from the Wharton School of University of Pennsylvania. He was previously associated with
Group Chief Financial Officer
Citigroup Global Markets India Pvt Ltd.
He has been associated with Paytm since April 1, 2020. He holds bachelor’s degree in engineering
Mr. Manmeet Singh Dhody, Chief (computer) from the University of Delhi and a master’s degree in business administration from Punjab
Technology Officer, Payments University. He was previously associated with Amazon Development Centre India Pvt Ltd and Microsoft
India (R&D) Pvt Ltd.
Mr. Sudhanshu Gupta, Chief He has been associated with Paytm First Games Pvt. Ltd. since June 1, 2018. He holds a bachelor’s degree
Operating Officer of Paytm First in science from the University of Delhi and a post-graduate diploma in business management from
Games Management Development Institute, Gurugram.
He has been associated with Paytm since August 4, 2020. He holds a master’s degree in business
Mr. Bhavesh Gupta, Chief Executive
administration from the Institute of Management Studies, Devi Ahilya Vishwavidyalaya, Indore. He was
Officer of Lending Business
previously associated with Clix Capital Services Pvt. Ltd. and IDFC Bank Ltd.
Mr. Deepankar Sanwalka, President He has been associated with Paytm since May 3, 2021. He holds a bachelor’s degree in commerce from the
- Compliances & Operations University of Delhi. He is a member of the Institute of Chartered Accountants of India.
He has been associated with the company since September 2, 2019. He holds a bachelor’s degree in
Mr. Praveen Kumar Sharma, Chief
technology (mechanical engineering) from Maharshi Dayanand University, Rohtak and a post-graduate
Operating Officer of Online
diploma in communications from Mudra Institute of Communications, Ahmedabad. He was previously
Payments
associated with Google Asia Pacific Pte. Ltd.
He has been associated with Paytm Labs Inc. since June, 2013. He holds a bachelor’s degree in engineering
Mr. Harinderpal Singh Takhar, Chief (computer) from the University of Delhi and a master’s degree in business administration from INSEAD. He
Executive Officer of Paytm Labs Inc was previously associated with Paytm Mobile Solutions Pvt. Ltd., Research In Motion Ltd. and Nokia
Corporation..
He has been associated with the company since April 22, 2021. He holds a bachelor’s degree in commerce
from the University of Delhi. Further, he also holds a bachelor’s degree in law from the University of Delhi
Mr. Amit Khera, Company Secretary
and a master’s degree in business laws from National Law School of India University, Bangalore. He is an
and Compliance Officer
associate of the Institute of Company Secretaries of India. He has been previously associated with Bharti
Airtel Limited and FieldFresh Foods Pvt. Ltd.
Chart 76: Shareholding pattern

Mutual Funds Others Antfin
1% 15% (Netherlands)
BH International
Holdings Holding B.V.
25%
2%
Saif Partners India
IV Ltd
5%
Alibaba.Com
Singapore E-
Commerce Pvt Ltd SVF India
6% Holdings
(Cayman) Ltd
Vijay Shekhar 17%
Sharma
9% Foreign Portfolio
Investors Saif III Mauritius Company Ltd
9% 11%
Source: BSE, I-Sec research
64
VIII. Super-App comparison

With increasing levels of digitisation, greater affordability of smartphones, and a covid
induced preference for digital, supper apps are finding greater acceptance for their
utility. Since Paytm also contains “Super App” feature in its mobile application, we have
tried to compare the mobile applications across different players offering multiple
services to customers through super app contained in one application. Since most of
the super apps are centered around their core offerings i.e. social messaging, digital
payments, e-grocery/foodtech, e-mobility, e-tailing, telecom etc., we have taken players
having one of the aforesaid mentioned core offering. Having said that, the list is not
exhaustive as there are multiple other players who are either already having super app
function or who are in the process of launching super app.
We have first shown the table containing the summary of comparison on key categories
followed by detail comparison across each key category shown through screenshots.
Table 35: Super App offers multiple services across the ecosystem
Offerings on the app Paytm Bajaj Finance MyJio Flipkart PhonePe
E-tail     
E-grocery     
Foodtech     
E-Pharma/E-Health     
EdTech     
Hospitatility (Hotel-Tech etc.)     
Digital Payments     
Digital Lending     
Fintech
InsurTech     
Wealth-Tech     
Wifi/Fibre Providing     
Social messaging/Social Media     
OTT-Video & Audio Audio-, Video-    
OTT-News     
E-mobility     
Online travel ticket booking     
Entertainment e-tickets     
Utilities/Public Services     
Gaming     
Source: Company data, Industry data, I-Sec research
65
Digital Payment Feature across players

Paytm Bajaj Finance MyJio
Flipkart PhonePe
NA
Bill/Utility payment feature across players

Flipkart PhonePe
NA
66
Digital Lending feature across players
NA
Flipkart PhonePe
NA
Insurance Tech feature across players

NA
67
Flipkart PhonePe
Wealth Management Tech feature across players

NA
Flipkart PhonePe
NA
68
Mini-App feature across players
Flipkart PhonePe
NA
E-tail feature across players

69
Flipkart PhonePe
E-grocery feature across players

NA
Flipkart PhonePe
70
E-Pharma feature across players
Flipkart PhonePe
NA
Edtech feature across players

Paytm (Mini-app) Bajaj Finance MyJio
NA
71
Flipkart PhonePe
NA
Hospitality feature across players

NA
Flipkart PhonePe
NA
72
Fibre/Internet setting feature across players
NA NA
Flipkart PhonePe
NA NA
Social Media/Social chatting feature across players

Paytm Bajaj Finance MyJio (Separate app for it; link
for which is inside super app)
NA NA
Flipkart PhonePe
NA NA
OTT-Video & Audio feature across players

NA
73
Flipkart PhonePe
NA
OTT News feature across players

Paytm mini app store (Print new Bajaj Finance (Online print MyJio
channel apps i.e. Finshots) media i.e. Inshorts in Miniapp)
74
Flipkart PhonePe
NA
E-mobility feature across players

NA NA
Flipkart PhonePe
NA
75
Online-travel booking feature across players
NA
Flipkart PhonePe
Entertainment E-ticket booking feature across players

NA NA
76
Flipkart PhonePe
NA
Online gaming feature across players

77
Flipkart PhonePe
78
Financial Summary
Table 36: Income statement
(Rs mn) FY19 FY20 FY21 FY22E FY23E FY24E FY25E FY26E
P&L
Payment and financial services 16,955 19,068 21,092 40,115 57,090 74,904 96,741 1,17,084
Payment Service revenue 15,711 17,778 19,808 35,668 48,701 60,895 76,564 90,027
- Payment services to consumers 10,851 10,120 9,692 15,312 18,959 21,880 25,978 28,745
- Payment services to merchants 4,860 7,658 10,116 20,356 29,742 39,016 50,586 61,282
Financial Service revenue 1,244 1,290 1,284 4,447 8,388 14,009 20,177 27,057
Commerce and cloud services 15,365 11,188 6,932 12,053 16,983 22,592 29,234 36,109
-Commerce revenue 11,915 7,109 2,452 4,437 6,401 7,990 9,781 11,489
-Cloud revenue 3,450 4,079 4,480 7,616 10,582 14,602 19,453 24,620
Other operating revenue - 2,552 - - - - - -
Revenue from operations 32,320 32,808 28,024 52,168 74,073 97,497 1,25,975 1,53,193
Payment processing charges 22,574 22,659 19,168 28,556 37,971 46,652 57,409 66,666
Promotional cashbacks and incentives 27,937 9,592 2,357 4,318 5,794 7,308 8,938 10,227
Connectivity and content fees 1,071 1,561 1,819 2,274 2,547 2,852 3,137 3,451
Content, ticketing and FASTag expenses 680 1,221 681 851 996 1,145 1,283 1,411
Logistic, deployment and collection cost 38 153 374 468 524 586 645 710
Contribution Profit -19,980 -2,378 3,625 15,702 26,241 38,953 54,562 70,729
Other Marketing & promotional expenses 6,146 4,379 2,968 5,495 7,375 9,301 11,376 13,016
Employee benefits expense excluding ESOP 7,016 9,532 10,724 16,279 22,224 26,586 31,100 35,921
Software, cloud and data centre expenses 3,096 3,603 3,498 4,967 5,563 6,231 6,854 7,539
Other expense 5,877 4,791 2,983 4,256 4,724 5,261 5,764 6,341
Adjusted EBITDA -42,115 -24,683 -16,548 -15,296 -13,645 -8,425 -532 7,912
ESOP Expense 1,546 1,661 1,125 9,749 17,799 15,625 11,977 9,680
EBITDA -43,661 -26,344 -17,673 -25,045 -31,445 -24,050 -12,510 -1,768
Depreciation and amortisation expense 1,116 1,745 1,785 2,231 2,611 3,002 3,362 3,699
Finance costs 342 485 348 480 564 619 648 650
Other income 3,477 2,599 3,844 2,977 4,421 3,445 2,753 2,531
PBT -41,642 -25,975 -15,962 -24,778 -30,199 -24,227 -13,767 -3,586
Share of profit / (loss) of associates / joint ventures/Others 93 -560 -740 -703 -668 -634 -603 -573
Exceptional items -825 -3,047 -281 -24 - - - -
Tax Expense -65 -158 27 - - - - -
PAT -42,309 -29,424 -17,010 -25,505 -30,867 -24,861 -14,369 -4,158

79
Table 37: Balance sheet
Share Capital 575 604 605 648 654 661 668 674
Reserves &Surplus 56,674 80,448 64,743 1,30,599 1,17,598 1,08,417 1,06,058 1,11,593
Minority Interest 862 -140 -186 -237 -299 -348 -377 -385
Networth 58,111 80,912 65,162 1,31,010 1,17,954 1,08,729 1,06,349 1,11,882
Non-current liabilities 2,338 5,459 4,799 5,173 5,597 5,955 6,345 6,770
Current liabilities 27,219 16,660 21,552 32,606 32,220 31,682 31,796 33,431
Total equity & liabilities 87,668 1,03,031 91,513 1,68,788 1,55,770 1,46,367 1,44,490 1,52,084
PP&E incl. right to use of assets and WIP 5,260 5,421 4,483 6,019 7,988 10,015 11,864 12,951
Goodwill 2,930 467 467 443 443 443 443 443
Investment in JV/Associate 2,462 3,230 2,317 2,350 2,350 2,350 2,350 2,350
Investments 1,051 2,276 341 512 537 564 592 622
Non-current Deposits 30 13,517 2,506 9,846 7,732 5,938 4,959 5,042
Other non-current assets 9,226 13,763 7,401 10,108 11,285 12,626 13,972 15,102
Total Non-current assets 20,959 38,674 17,515 29,278 30,335 31,936 34,180 36,510
Investments 24,979 31,894 1,472 4,923 3,866 2,969 2,479 2,521

Cash & cash equivalents 3,255 4,232 5,468 14,769 11,597 8,908 7,438 7,563
Bank balances other than cash and cash equivalents 1,358 1,170 23,296 68,923 54,121 41,569 34,710 35,296
Other current assets 37,117 27,061 43,762 50,895 55,852 60,984 65,682 70,193
Total current assets 66,709 64,357 73,998 1,39,510 1,25,436 1,14,431 1,10,310 1,15,573
Total Assets 87,668 1,03,031 91,513 1,68,788 1,55,770 1,46,367 1,44,490 1,52,084
Table 38: Cash flow statement

Total comprehensive income net of tax -44,209 -29,847 -15,112 -25,449 -30,800 -24,806 -14,336 -4,145
Other operating cash flows -550 6,081 -5,713 12,929 12,698 12,183 8,823 10,598
Cash flow from operations -44,759 -23,766 -20,825 -12,520 -18,102 -12,623 -5,513 6,453
Investing cash flow 19,110 -19,963 19,298 -3,605 -4,628 -5,095 -5,293 -4,873
Fresh equity issuance (net of expenses 21,869 50,400 107 81,556 - - - -

Other financing cash flows -764 1,199 -2,328 288 1,584 -213 1,006 -743
Cash flow from financing activities 21,105 51,599 -2,221 81,844 1,584 -213 1,006 -743
Net change in cash flows -4,544 7,870 -3,748 65,719 -21,146 -17,931 -9,799 837
80
Table 39: Key ratios
Growth ratios FY19 FY20 FY21 FY22E FY23E FY24E FY25E FY26E
Total revenue from operations 1.5% -14.6% 86.2% 42.0% 31.6% 29.2% 21.6%
Payment processing charges 0.4% -15.4% 49.0% 33.0% 22.9% 23.1% 16.1%
Marketing and promotional expenses -59.0% -61.9% 84.3% 34.2% 26.1% 22.3% 14.4%
Employee benefits expense 30.7% 5.9% 119.7% 53.8% 5.5% 2.1% 5.9%
Software, cloud and data centre expenses 16.4% -2.9% 42.0% 12.0% 12.0% 10.0% 10.0%
Other expense 0.8% -24.2% 34.0% 12.0% 12.0% 10.0% 10.0%
EBITDA -39.7% -32.9% 41.7% 25.6% -23.5% -48.0% -85.9%
Adjusted EBITDA -41.4% -33.0% -7.6% -10.8% -38.3% -93.7% -1586.2%
EBIT -37.3% -30.7% 40.2% 24.9% -20.6% -41.3% -65.6%
PBT -37.6% -38.5% 55.2% 21.9% -19.8% -43.2% -74.0%
PAT -30.5% -42.2% 49.9% 21.0% -19.5% -42.2% -71.1%
Contribution Profit -88.1% -252.4% 333.2% 67.1% 48.4% 40.1% 29.6%
As a % of GMV
GMV (Rsmn) 22,92,000 30,32,000 40,33,000 89,25,160 1,31,51,84 1,79,08,27 2,40,46,43 3,07,25,18
4 7 1 5
Payment and financial services 0.74% 0.63% 0.52% 0.45% 0.43% 0.42% 0.40% 0.38%
- Payment services to consumers 0.47% 0.33% 0.24% 0.17% 0.14% 0.12% 0.11% 0.09%
- Payment services to merchants 0.21% 0.25% 0.25% 0.23% 0.23% 0.22% 0.21% 0.20%
- Others including financial services revenue 0.05% 0.04% 0.03% 0.05% 0.06% 0.08% 0.08% 0.09%
Revenue from operations 1.41% 1.08% 0.69% 0.58% 0.56% 0.54% 0.52% 0.50%
Payment processing charges 0.98% 0.75% 0.48% 0.32% 0.29% 0.26% 0.24% 0.22%
Marketing and promotional expenses 1.49% 0.46% 0.13% 0.11% 0.10% 0.09% 0.08% 0.08%
Contribution -0.87% -0.08% 0.09% 0.18% 0.20% 0.22% 0.23% 0.23%

EBITDA -1.90% -0.87% -0.44% -0.28% -0.24% -0.13% -0.05% -0.01%
Adjusted EBITDA -1.84% -0.81% -0.41% -0.17% -0.10% -0.05% 0.00% 0.03%
Margin
Contribution margin -61.8% -7.2% 12.9% 30.1% 35.4% 40.0% 43.3% 46.2%
EBITDA margin -135.1% -80.3% -63.1% -48.0% -42.5% -24.7% -9.9% -1.2%
Adjusted EBITDA margin -130.3% -75.2% -59.0% -29.3% -18.4% -8.6% -0.4% 5.2%
PAT margin -130.9% -89.7% -60.7% -48.9% -41.7% -25.5% -11.4% -2.7%
RoE 0.0% -42.3% -23.3% -26.0% -24.8% -21.9% -13.4% -3.8%
Per share ratios

EPS (Basic) -73.0 -47.2 -28.1 -39.2 -47.0 -37.5 -21.5 -6.1
EPS (Diluted) -73.0 -47.2 -28.1 -36.6 -44.3 -35.7 -20.6 -6.0
BVPS 100.0 134.7 108.4 188.8 170.1 156.9 153.6 161.5
EBITDA per share -76.3 -43.8 -29.3 -36.0 -45.2 -34.6 -18.0 -2.5
Op. revenue per share 56.4 54.5 46.5 75.1 106.6 140.3 181.3 220.4
Valuation ratios
Price / Sales 15.1 15.6 18.3 11.1 7.8 5.9 4.6 3.8
EV / EBITDA -11.1 -19.4 -29.0 -23.1 -18.4 -24.1 -46.3 -327.7
Price / Book 8.5 6.3 7.8 4.4 4.9 5.3 5.4 5.2
Price / Earnings -11.6 -18.0 -30.2 -22.8 -18.8 -23.4 -40.4 -139.7
Source: Company data, I-Sec research.
81
Index of Tables and Charts

Tables
Table 1: Paytm has created sizeable leading digital ecosystem for consumers and
merchants........................................................................................................................ 4
Table 2: Penetration levels low in India compared to other countries .................................. 5
Table 3: Medium-term outlook across businesses ............................................................... 6
Table 4: Non-cash ESOP charges (estimated) to weigh on reported EBITDA (Rs mn)..... 11
Table 5: 45-50% of payment revenues and charges are related to PPB ........................... 11
Table 6: 30-35% of revenues and 35-40% of expenses are from related parties .............. 11
Table 7: Medium-term outlook across businesses ............................................................. 19
Table 8: Customer lifetime value to drive intrinsic business value ..................................... 22
Table 9: Customer lifetime value: Rs2k per consumers; Rs30k per merchant .................. 22
Table 10: Sensitivity analysis on EBITDA margins with changes in key variables............. 23
Table 11: Payment net take rate (% of merchant GMV) sensitivity on EBITDA margin ..... 23
Table 12: Consumer lending adoption rate (% of MTU) sensitivity on EBITDA margin ..... 23
Table 13: Merchant lending adoption rate (% of merchant with devices) sensitivity on
EBITDA margin ............................................................................................................. 23
Table 14: Marketing expenditure as % of revenues sensitivity on EBITDA margin ........... 23
Table 15: Paytm valuation suggests it trades largely in-line with or at a slight premium to
global peers ................................................................................................................... 24
Table 16: Consumer and merchant base superior to peers ............................................... 25
Table 17: Paytm has created sizeable leading digital ecosystem for consumers and
merchants...................................................................................................................... 26
Table 18: Retail digital payment market in India grew at a CAGR of >25% over FY17-
9MFY22 ......................................................................................................................... 28
Table 19: GMV by cohort suggests improved engagement with vintage ........................... 31
Table 20: Ticket size across various payment instruments suggests high transaction
frequency on Paytm ...................................................................................................... 31
Table 21: Paytm Payments Bank’s leadership as beneficiary bank with >20% share ....... 32
Table 22: Transaction decline is managed well though has risen in Dec’21 ...................... 33
Table 23: Estimated market opportunity (US$ bn).............................................................. 37
Table 24: Globally, BNPL has emerged as a large and fast-growing opportunity to
democratise lending ...................................................................................................... 42
Table 25: Market sizing ....................................................................................................... 45
Table 26: Non-cash ESOP charges (estimated) to weigh on reported EBITDA ................ 54
Table 27: Spike in ESOP charges due to grant of 27.5mn shares in 9MFY22 .................. 54
Table 28: Key revenue drivers across products and services ............................................ 57
Table 29: Fees/charges for various businesses ................................................................. 60
Table 30: 45-50% of payment revenues and charges are related to PPB ......................... 61
Table 31: More than 50% of PPB’s revenue flows from third party sources ...................... 62
Table 32: On a net basis, revenue impact would be neutral, if consolidated ..................... 62
Table 33: 30-35% of revenues and 35-40% of expenses are from related parties ............ 62
Table 34: Management team .............................................................................................. 64
Table 35: Super App offers multiple services across the ecosystem ................................. 65
Table 36: Income statement ............................................................................................... 79
Table 37: Balance sheet ..................................................................................................... 80
Table 38: Cash flow statement ........................................................................................... 80
Table 39: Key ratios ............................................................................................................ 81
Charts
Chart 1: P2M digital payment has potential to grow six-fold by FY26E ................................ 5
Chart 2: UPI, along with cards, will continue to lead the growth........................................... 5
Chart 3: India’s BNPL market has rapidly grown to reach US$3-3.5bn in disbursals in FY21
and is on track to grow to US$45-50bn by FY26 driven by user growth ........................ 5
82
Chart 4: Average MTU as well as merchant base to grow >1.5-2.0x over the next 5 years 6
Chart 5: Operating revenue to grow at >31% CAGR............................................................ 7
Chart 6: Financial services and payment services to merchant revenue pie to expand ...... 7
Chart 7: Contribution margin to improve to 40% / 46% by FY24E / FY26E ......................... 7
Chart 8: Adjusted EBITDA to turn positive by FY26E; ESOP charges to drag reported
EBITDA ........................................................................................................................... 7
Chart 9: Paytm’s market share in merchant GMV to sustain above 20% ............................ 8
Chart 10: Paytm’s merchant UPI GMV is expected to compound at a CAGR of 45% ......... 8
Chart 11: We forecast merchant GMV to grow at 36% CAGR; take rates to moderate
further .............................................................................................................................. 8
Chart 12: From a drag of 30bps in payment net take rate, it will be accretive going forward8
Chart 13: Payment business revenue to grow at 26% ......................................................... 9
Chart 14: Commerce GMV to grow at 31%; commerce revenue to register 27% CAGR .... 9
Chart 15: Commerce and cloud business will ramp up at 32% CAGR leading .................... 9
Chart 16: Financial services revenue to grow at 57% CAGR constituting 18% of revenues 9
Chart 17: BNPL and merchant lending to account for one-third each .................................. 9
Chart 18: Postpaid adoption assumed at 15% ................................................................... 10
Chart 19: Postpaid revenue to grow at 62% CAGR ........................................................... 10
Chart 20: Personal lending adoption assumed at <1% and take rates of 4.8-5.0% ........... 10
Chart 21: Personal lending revenue to grow at 41% .......................................................... 10
Chart 22: Adoption of merchant cash advances to grow 10x ............................................. 10
Chart 23: Merchant lending revenue to grow exponentially ............................................... 10
Chart 24: Paytm calls for evaluation and assessment quite differently and distinctly ........ 12
Chart 25: Since FY14, cumulative operating revenue of Rs140bn, nonetheless incurred
accumulated loss of Rs130bn ....................................................................................... 14
Chart 26: Spent aggressively on marketing in FY18-20 to the extent of >Rs70bn ............ 15
Chart 27: Average MTU as well as merchant base to grow 2-3x over the next 5 years .... 24
Chart 28: Mobile payments by value to grow 5x over the next 5 years .............................. 29
Chart 29: Mobile payments (P2M) by value to grow ~7x over the next 5 years ................. 29
Chart 30: P2M digital payment has potential to grow six-fold by FY26E ............................ 30
Chart 31: UPI, along with cards, will continue to lead growth............................................. 30
Chart 32: Proportion of UPI in P2M digital payment to rise as high as 73% ...................... 30
Chart 33: UPI formed 11% in retail digital payment ............................................................ 30
Chart 34: Paytm’s market share in merchant GMV to sustain above 20% ........................ 32
Chart 35: Paytm enjoys 8-9% market share in UPI app transactions................................. 32
Chart 36: Paytm’s merchant UPI GMV is expected to compound at a CAGR of 45% ....... 34
Chart 37: We forecast merchant GMV to grow at 36% CAGR; take rates to moderate
further ............................................................................................................................ 34
Chart 38: Payment business revenue will grow at 26%; proportion of zero MDR UPI to rise
to 62% ........................................................................................................................... 35
Chart 39: Proportion of payment services to merchants will rise further up to 68% ........... 36
Chart 40: Travel ticketing market to reach US$60bn .......................................................... 38
Chart 41: Entertainment ticketing to recover sharply post covid pandemic to US$3.5bn... 38
Chart 42: Online gaming industry to grow 4.5x by FY26 .................................................... 38
Chart 43: Advertising market to more than double with half of that being digital marketing
spends ........................................................................................................................... 38
Chart 44: Commerce GMV to grow at 31%; commerce revenue to register 27% CAGR .. 40
Chart 45: Commerce and cloud business will ramp up at 32% CAGR .............................. 40
Chart 46: BNPL is a disruptive trend driving access to consumption credit and is likely to
grow rapidly in future - as most of its target categories are themselves also poised for
rapid growth in next few years ...................................................................................... 42
Chart 47: BNPL (in India) is expected to grow ~15 times in the next five years and become
a large share of the consumer internet market ............................................................. 42
Chart 48: India’s BNPL market is on track to grow to >US$50bn by FY26 driven by user
growth............................................................................................................................ 43
Chart 49: MSME lending market is set to become ~US$600bn opportunity ...................... 43
Chart 50: Financial services revenue to grow at 57% CAGR constituting 18% of revenue 48
83
Chart 51: BNPL and merchant lending to account for one-third each ................................ 48
Chart 52: Postpaid adoption assumed at 15% and take rates of 2.8-3.2% ........................ 49
Chart 53: Pospaid revenue to grow at 62% CAGR ............................................................ 49
Chart 54: Personal lending adoption assumed at <1% and take rates of 4.8-5.0% ........... 49
Chart 55: Personal lending revenue to grow at >41% CAGR ............................................ 49
Chart 56: Adoption of merchant cash advances to grow 10x ............................................. 50
Chart 57: Merchant lending revenue to grow exponentially ............................................... 50
Chart 58: Lending business disbursements to grow at 68% CAGR ................................... 50
Chart 59: BNPL to constitute more than half of disbursements.......................................... 51
Chart 60: BNPL and merchant lending to constitute major chunk of revenues .................. 51
Chart 61: Operating revenue to grow at >30% CAGR........................................................ 51
Chart 62: Financial services and payment services to merchant revenue pie to expand .. 51
Chart 63: Payment processing charges have levers for better efficiency .......................... 52
Chart 64: From a drag of 30bps in payment net take rate, it will be accretive going forward
...................................................................................................................................... 53
Chart 65: To grow and engage customers, additional marketing spend is must................ 53
Chart 66: Technology, sales and financial services to call for employee addition ............. 55
Chart 67: Investment required in cloud infra ....................................................................... 55
Chart 68: Other fixed cost to grow at 10-12%..................................................................... 55
Chart 69: Contribution margin to improve to 40% / 46% by FY24E / FY26E ..................... 56
Chart 70: Adjusted EBITDA to turn positive by FY26E; ESOP charges to drag reported
EBITDA ......................................................................................................................... 56
Chart 71: Transaction and fee flow for payment gateway .................................................. 58
Chart 72: Transaction and fee flow for UPI......................................................................... 58
Chart 73: Transaction and fee flow for BNPL ..................................................................... 59
Chart 74: Merchant MDR dominates revenue for global BNPL players ............................. 59
Chart 75: Group structure and key related entities ............................................................. 63
Chart 76: Shareholding pattern ........................................................................................... 64
84
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Equity Research INDIA

February 18, 2022

I. Story in charts ..................................................................................................................... 4

* ~8% market share

BNPL user base 70-75

Source: Industry data, I-Sec Research

Table 2: Penetration levels low in India compared to other countries

Table 3: Medium-term outlook across businesses

Chart 7: Contribution margin to improve to 40% / 46% by FY24E / FY26E

Chart 8: Adjusted EBITDA to turn positive by FY26E; ESOP charges to drag

25% 21% 18% 16%

BNPL Service Instant personal loan service

80.0 30.0 1.1 2

Table 5: 45-50% of payment revenues and charges are related to PPB

II. Paytm calls for evaluation and assessment

 Management’s high growth aspirations (mission to get half a billion India’s

Source: Company data, I-Sec research

Let’s pay heed to some realities and certainties

Two-sided digital ecosystem with proven leadership in payments

TAM signifies immense growth potential

Innovation and early mover advantage provide some edge

Access to voluminous data to cross-sell and up-sell

Be mindful of challenges it needs to face and emerge stronger

Highly competitive landscape with low switching cost; players with

Scale coming at the cost of profitability

40.0 Cumulative loss: Rs 148bn 32.3 32.8 34.3

Operating revenues Profit / Loss

Unit economics contingent on scale up of financial services revenue

The above recommendations are examples of regulators vigilance on digital lenders to

Paytm is cognisant of regulatory risks and is subjected to regular review as Paytm

Data, a key moat of Paytm ecosystem, is getting democratised

Assessing Paytm’s market positioning

Payment Services: Market leader but not margin accretive

Run-rate of merchant GMV at Rs8.9trn for FY22E is estimated to command a share of

Commerce and cloud services: An engagement engine; just an

Financial services: Monetisation tool through distribution model

Cross-selling effectiveness is demonstrated in case of personal loans as 50% of loans

How does revenues stack up in the medium term

Payment Services: MTUs to double; merchants with devices to quadruple

Some visibility on positive EBITDA post FY26E

Contribution margin to improve to 40/46%% by FY24E/FY26E

Positive catalysts that can swing earnings delta

Ability to monetise UPI transactions can swing earnings delta

Wallet interoperability will benefit the category leader in the form of

Transition to small finance bank – an optionality

Customer lifetime value derived MTUs/merchants to assess

Sensitivity analysis on key operating parameters

Table 14: Marketing expenditure as % of revenues sensitivity on EBITDA margin

IV. Sizeable two-sided digital ecosystem

* ~8% market share

Payment Services: Market leader but not margin accretive

Customer/merchant acquisition engine with comprehensive product

Similarly, it acquires merchants to receive or accept usage of these payment

Potential target addressable market to grow at ~6x by FY26E

Market leader in payments business

10% 15% FY26E

To be offset by reduced payment processing cost; be net revenue accretive