India's Paytm experienced only a slight reduction in its revenue decline during the second quarter, as its user base continued to shrink in its primary digital payments sector. This trend suggests a slower recovery than anticipated following the central bank's decision to suspend its banking operations.
On Tuesday, Paytm's shares plummeted by as much as 7.7%, despite the company's earlier prediction in May of a "meaningful improvement" in both revenue and profitability starting in the second quarter.
The financial regulator of the country had shut down Paytm's banking unit in January due to ongoing compliance issues, raising concerns about the viability of its digital payments operations and leading to a significant drop in its stock value.
Although Paytm has received regulatory approval to operate as a third-party application for its current digital payment users, it has not yet been authorized to onboard new customers.
Consequently, the number of monthly transacting users decreased by 25% year-on-year to 71 million, and there was a decline of approximately 9% from the previous quarter.
Revenue from the payments segment fell by 37% in the second quarter, mirroring the decline from the prior quarter, while its share of total revenue decreased from around 59% to 57%.
Overall, Paytm's revenue, which also encompasses its loans division, dropped by 34%, a slight improvement compared to the 36% decline recorded in the previous quarter.
The company announced that it will offer a default loss guarantee (DLG) of up to 2.25 billion rupees to its lending partner, SMFG India Credit Co, for loans extended to merchants.
Paytm anticipates that the DLG model will facilitate increased capital for merchant loan disbursements and is willing to implement this model with additional lending partners, although not all lenders have expressed interest, as noted by management during an analyst call.
The contribution margin, which reflects revenue after accounting for cashbacks and payment processing fees, increased sequentially to 54%, up from 50%.
Paytm reported a net profit of 9.28 billion rupees, marking its first profit since going public in 2021. However, this profit was largely attributed to a 13.45-billion-rupee gain from the sale of its ticketing business to Zomato, a food delivery service.
When excluding this gain and taxes, the company recorded a loss of 4.07 billion rupees in the second quarter, an improvement from the 8.39 billion rupee loss in the previous quarter, but higher than the 2.73 billion rupee loss reported a year prior.