One 97 Communications Ltd

NSE:PAYTM

Earnings Call Analysis

Revenue Up 32%, EBITDA and Margins Grow

In the latest quarter, the company's revenue hit INR 2,500 crores, a 32% year-on-year increase, while EBITDA reached INR 153 crores, approximating 6% of revenue, and excluding any expected UPI incentive income. It marked a significant year-on-year EBITDA improvement of INR 319 crores and showcased the company’s continued focus on profitability. The contribution margin expanded by 69% year-on-year to INR 1,426 crores, reflecting enhanced unit economics. The average monthly transacting users in the payments business grew to INR 9.5 crores, reflecting an uptick of 19% year-on-year, and a 91% increase in merchant subscriptions, emphasizing the growing adoption of the company's devices and services. The net payment margin improved by 60% year-on-year. The lending business also demonstrated positive momentum with an annual loan distribution run rate exceeding USD 8 billion, indicating robust growth despite a prudent approach to the personal loan segment.

Revenue and EBITDA Improvement Signals Robust Growth

In a testament to sustainable growth, the company's revenue this quarter is at INR 2,500 crores, which translates to an annual revenue surpassing INR 10,000 crores—a significant milestone. The company also showcased a strengthened EBITDA, reaching INR 153 crores, 6% of revenue, this quarter. This marks a substantial year-on-year upturn of INR 319 crores. Notably, these figures exclude any UPI incentive money due later in the year, highlighting a genuine improvement in financial health.

Year-on-year Revenue Growth: Leveraging Festive Sales

The company has experienced a commendable revenue growth of 32% year-on-year. Executives pointed out that this percentage may rise in the next quarter, with the anticipation of increased online sales during the festive season—an opportunity for further revenue spike.

Contribution Margin and Cost Control Show Efficiency Gains

The company's contribution margin demonstrated a solid 69% year-on-year growth, settling at INR 1,426 crores. This reflects not only improved unit economics but also an effective strategy in operating leverage. Moreover, aside from sales-related headcount, the company successfully limited increases in indirect expenses, showcasing disciplined cost management across various verticals—signifying prospects of increased EBITDA over time.

Payments Business: Expanding User Base and Merchant Adoption

The payments business underlines impressive growth statistics, with their average monthly transacting users growing by 19% year-on-year, and a staggering 91% increase in merchant subscription year-on-year. These developments can be attributed to the network effect and product innovation like the Soundbox line-up, which has led to better merchant adoption rates. Additionally, the net payment margin saw a significant 60% rise year-on-year, asserting increased payments profitability, with INR 700 crores in net payment margin this quarter alone.

Lending Business: Optimizing Portfolio Quality and Growth

The company's lending business continues to gain momentum, with an overall year-on-year growth of 122%. Despite moderating the growth of the personal loan segment due to early signs of suboptimal portfolio quality, the lending arm has achieved a run rate of more than USD 8 billion. Noteworthily, the Postpaid and Merchant loan segments exhibit robust growth, with reduced entry rates—indicating a trend towards lower expected credit loss rates in time. The company's careful strategic measures have led to an improved loan distribution and collections performance, balancing scale and quality efficiently.

Cloud Business and Credit Cards: Surging Popularity and Partnerships

The cloud business, predominantly driven by co-branded credit cards and advertising, reports considerable traction. The active credit card count jumped from 3 lakhs to 8.7 lakhs year-on-year, reflecting a successful partnership with major banks HDFC and SBI and an acute focus on customer acquisition and retention in these segments.

Commerce: Strong GMV and Sustainable Revenue Growth

Markedly, the company's Gross Merchandise Value (GMV) has surged by 39% year-on-year, resting at INR 2,900 crores. Complementing this is a reported year-on-year revenue growth of 31%, with take rates anchored firmly within the guided range of 5% to 6%. The company is strategically positioned to capitalize on this growth trajectory across its varied commerce ventures.

Earnings Call Transcript 2024-Q2

[Operator]

Before we start the presentation, we would like to play a small video about Paytm soundbox journey and innovation.

[Presentation]

[Operator]

Thank you again, from Paytm's management, we have with us today, Mr. Vijay Shekhar Sharma, Founder and CEO; Mr. Madhur Deora, President and Group CFO; Mr. Bhavesh Gupta, CEO of Lending and Head of Payments; and Mr. Anuj Mittal, Vice President, Investor Relations.

A few standard announcements before we begin. This call is for existing shareholders of Paytm, potential investors and research analysts. This call is not meant for the media. If any media representatives are on this call, we request you to kindly drop off at this point.

The information to be presented and discussed here should not be recorded, reproduced or distributed in any manner. Some statements made today may be forward-looking in nature. Actual events may differ materially from those anticipated in such forward-looking statements. Finally, this earnings call is scheduled for 60 minutes. It will have a presentation by the management, followed by Q&A. [Operator Instructions]. The presentation, a replay of this earning and a transcript will be made available on our website subsequently.

With this, I would like to request Mr. Vijay Shekhar Sharma to kindly initiate the call.

[Vijay Sharma, executive]

Good morning, everyone. And today's earning call, with me, Madhur and Bhavesh are taking together [Foreign Language]. I'm very happy to see the kind of innovation we've done in last quarter. You must have seen the amount of attention we put to the merchant ecosystem in India and make every nook and corner of India digital enabled and helped us achieve incredible financial inclusion that is expectation of our government regulators and everyone out there.

With focus on operational risk and compliance and innovations that are exemplary in the market, we've had a great momentum in last quarter. You've seen our results. We've had a festive season unlike last quarter -- last year, which was in this quarter is coming in the next quarter. So Q-on-Q, we would see those numbers looking more mappable in the next quarter. I'm very happy to see the kind of attention we are putting on growth and kind of innovations, led growth kind of revenue-led growth, platform scale. And I'm very happy to see that our teams have a great momentum out there.

With me today, Madhur will give you more insights, and Bhavesh will talk about more businesses. And I want to hand over to Madhur for detailed conversation. We look forward to answer the questions as many more beyond 60 minutes. But as we know, we would -- we are here to answer, take questions and answers any which ways 365 days out there.

[Madhur Deora, executive]

Thank you, Vijay. Good morning, everyone. It's my honor to present the financials for quarter ending September 2023. Our revenue growth -- our revenue this quarter was INR 2,500 crores. So annualizes to more than INR 10,000 crores is an important milestone for the company. We also continue to improve our EBITDA. This quarter, we had EBITDA of INR 153 crores, which is about 6% of revenue.

Just to remind everyone, this does not include any UPI incentive money that we would get for this quarter later in the year. And this is a significant improvement of INR 319 crores year-on-year. So continued focus on profitability as we have talked about previously. Our revenue growth year-on-year was 32%, like Vijay mentioned earlier, some of the festive season sales, particularly online sales this year will happen in Q3 or are happening in Q3, whereas some of this had happened in Q2 last year, purely due to the shift in timing of Diwali this year versus last year.

Our contribution margin has grown by 69% year-on-year. We're very proud of this improvement in unit economics that we keep delivering. And we are now at INR 1,426 crores. We have talked about operating leverage in the past, if you'll notice our indirect expenses this quarter, other than increase in sales employees has been very muted. So we have put a lot of controls on all of our other indirect costs such as people costs, marketing costs, tech and all the other things, which go into other indirect expenses.

While we'll continue to invest in marketing, sales and select other areas, we believe that this discipline is really going to pay off in terms of growth in operating leverage and growth in EBITDA over time. The next slide, please. This is our performance on the payments business. Payments business, our average monthly transacting users has grown by 19% year-on-year to INR 9.5 crore monthly transacting users.

So we're seeing an uptick in this number compared to last quarter. Our merchant subscription, we're very proud of has gone up 91% year-on-year. If you noticed in the last quarter, we added more than 13 lakh merchants, which is higher than the run rate that we were enjoying previously. So we're seeing a definite increase in adoption, the pace of adoption of our devices.

I think part of this has to do with the network that we have created and sort of just making this device standard for the merchants and also all the innovation that we are doing such as Pocket soundbox, Card soundbox and Music soundbox that Vijay talked about and that you would have seen in our video. Net payment margin is up 60% year-on-year. We continue to deliver more payments profitability. This quarter, alone we did INR 700 crores of net payment margin. And this is at the high end of our guidance of 7 to 9 bps.

This is despite the fact that as I mentioned earlier, we don't have UPI incentives in this quarter. And our subscription revenue continues to grow steadily as the scale of the devices grow -- the deployment grows. Can we go to the next page, please. I'll turn it over to Bhavesh to talk about lending.

[Bhavesh Gupta, executive]

Yes. Thank you, Madhur. So lending business continues to see a decent momentum. As we've been mentioning over the last 3 quarters, we have muted in consultation with our lending partners, growth of our personal loan business because we, much earlier than what generally the market had started to see maybe last quarter, we started to see couple of quarters back that there were some early signs of the portfolio, which could not be built in a manner that we would like to build with our partners.

So that other than PL, our Postpaid business and Merchant loan business continues to see very, very healthy growth. And PL business, we've obviously slowed down ourselves. In spite of that part, Q-on-Q, we still had a decent growth in Y-on-Y as you can see, we've grown to 122%. We've ended the quarter at INR 16,211 crores. This results in an annual run rate of more than USD 8 billion of [funded basis]. And we still have[ each one] ahead of us and the festive season.

And we do see that in the next coming quarters, we'll see a much better momentum of the loan business, including the Personal loan business. I'm very happy to inform true to our focus of how we would like to build the portfolio with our partners. We continue to see much better portfolio performance what -- than the portfolio performance we saw, let's say, last quarter, the quarter before that. The entry rates or the bounce rates as we call them, for our Postpaid business have further come down and now are in the range of 9.5% to 10.75%.

This is a reduction of almost 50 basis points over the last couple of quarters. Our ECL rates on this business can to remain range bound between 0.65% and 0.85%. I do believe that the entry rate is coming down. Maybe in the longer arc, you could see the ECL rates also to drop below 0.65% to 0.85% range bound. The Personal loan, while the ECLs have remained stable because we did a lot of proactive engagement and portfolio actions with our partners. Our entry rates, the check bounce rates have come down now all again by about 50 basis points from to 10.25% to 11.25% range. What it suggests is that again in the long arc, if we say it a couple of quarters ahead, we could see more positive development on how the ECLs will play out in the Personal loan business.

The important part here is, in spite of very, very good scale-up that we've done on the Merchant loan business on the back of much higher deepening of our devices strategy in the merchants. Our Merchant loan portfolio has become even better. Our ECLs here have again dropped down by about 50 basis points, and now we are operating in the range of 4.75% to 5.25%. So on an overall basis, the loan distribution and collections business for us continues to perform in a manner of expectation that we've had.

And I'm also happy to inform that like we said in the past that we'll continue to add new lending partners. In this quarter, we have added Tata Capital as another top-notch name, AAA NBFC as a lending partner. Last quarter, as you know, we made an announcement that we added Shriram Finance. So we have -- now had 2 more incremental partners taking the overall partners to 9 [indiscernible] has in our portfolio. I'll hand it over back to Madhur to the next presentation.

[Madhur Deora, executive]

Thank you, Bhavesh. So this is about our commerce and cloud business. On our cloud business, now this cloud business is more than majority or it is majority co-branded credit cards and advertising, as we've been talking about in the previous quarters that these are the 2 big growth areas in this business. Both those businesses continue to do well. Our credit card number now is 8.7 lakhs activated credit cards as of September 2023. The same number was actually 3 lakhs a year ago.

So we have added roughly 6 lakh cards in the last year, and we are seeing continued traction with our partners, HDFC and SBI. As we have mentioned before, PAI Cloud business had a strong quarter last year in this quarter. And our Telecom VAS offerings, which is the marketing cloud businesses have seen a decline year-on-year as a result of which our overall cloud revenues was only 3% year-on-year growth, but we think that this is a bit of an aberration. We think this is a bit of an aberration given the points mentioned here.

And from here, the business should continue to grow strongly. On the commerce side, we have seen strong growth. We -- our GMV is now INR 2,900 crores roughly, which is up 39% year-on-year, and our take rates have also remained in the guided range of 5% to 6%. As a result, we have got 31% year-on-year revenue to growth to report. And in each of our businesses, travel, entertainment and deals and gift voucher, we are seeing continued growth going forward. Can we go to the next slide, please?

And finally, our key focus areas. As we have mentioned before, and this should [have been no surprise]. We are extremely bullish on the mobile acceptance. We are extremely bullish on the mobile payment acceptance in the country, especially due to the new innovative products that we're offering, which I mentioned on the right, and they have a tremendous product market fit. And each of them are solving a specific problem that merchants have either by growing TAM or growing stickiness or helping them with card acceptance.

Credit and financial services with all the work that we have done so far, INR 16,000 crores of disbursals. We still think that we are heavily, heavily underpenetrated. Personal loans, as you have seen, is only about 1% of our customers. Merchant loan is about 6% of our merchants. So there's a huge runway ahead for each of our products. Farming of online merchants. We -- our online merchants team has done a tremendous job in Paytm payment services to do more and more with existing merchants.

So this has got to do with having more payment instruments. -- being accepted through us, better success rates for our merchants, which is really helping us deepen our partnerships and grow our share of volumes with merchants. And finally, going forward, you'll probably hear us talk more about enabling commerce, given that now payments and lending business have become such contributors.

We are very bullish on each of these businesses, which is travel ticketing, entertainment, deals gift vouchers, advertising and so on. So just here us talk more about how this third piece of the business of Paytm is shaping up.

With that, I'll hand back to the moderator, and we will take all the questions you have.

[Operator]

Thank you. We will now proceed with Q&A. [Operator Instructions] First question is from the line of Sachin Salgaonkar.

[Sachin Salgaonkar, analyst]

I have 3 questions. First question, both to Madhur and Bhavesh. I wanted to understand on the Personal loan bit. I mean you guys are consciously sort of going to reduce the growth in terms of portfolio because you're seeing the early signs out there. The question out there is what is now changing that you guys are getting comfortable that the growth should sort of pick up in the future?

[Bhavesh Gupta, executive]

Yes. Thank you, Sachin, for the question. You rightly said, we saw some early trends about 3 quarters back, then I think nobody in the market was kind of suggesting that we could see some bit of stress coming in the unsecured credit. We haven't seen any portfolio deterioration, as you can see over the last 3 quarters. So we are pretty comfortable with regards to portfolio that we've been able to originate with our partners. The comfort is largely coming from 2 levels. One part here is that we now have a very, very large user base who has taken PL over the last 2.5 years, and they have matured the portfolio in a fairly large quantity, if I may use the word.

We have more than INR 3 crores to INR 400 crores of portfolio which gets matured every month. Which is available for further upsell through our partners. So that's one bucket, which is growing quarter-on-quarter. And in the next 2 quarters, we'll see the renewal opportunity available to fully matured loans will be much higher than what we've seen in the last 2 quarters.

The other part it is that we do see that overall expansion of our lending partner base also brings in more insights on how the lenders look at this business, both in terms of risk and as well as the newer geographies and pin codes that they would like to open. So you will see some level of upside. We're not expecting Personal loans to start growing the way they used to grow, let's say, a year back, but the muted approach to PL will no more be muted, and we'll see some growth start to happen maybe in early double digits but not at the level that we've been seeing last year.

[Sachin Salgaonkar, analyst]

Very clear. Second question is more on the partners. I just wanted to double confirm that is the partnership with Shriram up and running, and we should see contribution coming from that going ahead?

[Bhavesh Gupta, executive]

Yes. So it's currently what we call it internally in the pilot phase. So early November is when we will start seeing contribution at full scale coming in from Merchant credit business that they will start to go live with.

[Sachin Salgaonkar, analyst]

Got it. And last call, you guys had mentioned that you were in talks with 2 to 3 new partners in around 6 months. We saw announcement of 1. Just wanted to check, are we on track in terms of announcing more partners in the next coming months?

[Bhavesh Gupta, executive]

Yes. So I just mentioned in my -- in the credit part, we have just gone live with Tata Capital on a pilot basis. And again, we'll scale up with them from next month onwards. So that's the second partner we've gone live after Shriram. And in the next 2 quarters, we at least expect to go live with 3 more partners, minimum 1 or 2 being banks out of the 3 partners.

[Sachin Salgaonkar, analyst]

Got it. And my last question, I just wanted to understand the competition outlook in the market. Because at one level, we are hearing new players are looking to enter into Soundbox. Google, for example, is also looking to come into Merchant loans. And more so, how do you guys look at something like with Geofinancial services? Is it more as a competition on the Soundbox front, for example? Or is there a room to potentially pack as a lending partner.

[Bhavesh Gupta, executive]

So I think there are multiple aspects of our questions. So let me take one by one. Any new fintech who tries to get in, be it the names that you mentioned or anybody else in our opinion, is good for making this entire business more robust and strong. As you saw in mobile payments, maybe about 7 to 8 years back, when Paytm got into the mobile payment world, we were maybe arguably the 1 or 2 players in the market.

But today, it is the way to go as far as payments is concerned. Our belief is in digital credit, what we started off 3 years back. More and more people endorsing it will make this product and partnership with banks as mainstream, which will help the overall economy and the financial inclusion agenda that I think all of us should be focused on and building India as a stronger economy.

So it's a good sign, both regulatory and otherwise. And in our opinion, this is not to be seen as competition but expansion of the market. To the other question about some of the other players, what would they do, including geo. I think very less is known in our mind currently of what these players will do or not do. Our opinion is that we are a fairly decently large-sized platform who can originate good quality credit for more and more partners and any new partner who has a balance sheet who comes into the market and they do believe that we can add value to building a good portfolio with them.

We would obviously look to partner with them. But as I said, that it's too early for us to comment about it. But yes, we see -- see any new partner with the balance sheet coming in as a collaborator. -- versus the competitor. With regards to your third question around Google or anybody else who's getting in this space. As I said, that is good. Anybody who comes in just endorses the belief that what we started off as a business model is now been adopted by larger companies and that just expands the market and makes the business a lot more what I can say, robust and ledged, both regulatory and otherwise. So it's a welcome move.

[Operator]

Next question is from Vijit Jain of Citi.

[Vijit Jain, analyst]

So my question is just staying on the devices a little bit. So clearly, you're getting more aggressive in driving device sign-ups and related to that, your merchant loans moving in the right direction, ECLs have gone down, loan growth is picking up. So I'm just wondering on 2 things. One, is the devices market much larger than you thought even a year back. And how are you thinking about the devices market now versus maybe a year back? And if you can help me with the sense of what your average device per merchant, who actually uses the device is currently?

[Vijay Sharma, executive]

So, Vijit, you must have seen the kind of innovation. We especially played out a video here today to explain how we have innovated on devices. I think our out execution on not just innovation, but distribution will play out very, very scalably in our favor. We've seen many players coming in the market, not able to do even create a dent on the merchant's trust and confidence on our devices. In fact, we've had net churn joined from those bias to us and especially when they make it free, et cetera, also makes it in our favor because this is not the cost that a merchant can't pay. He wants more assured immediate and superior product on the table.

So it's not a price sensitive product. It is a value and skill sensitive product. And there, we have an edge number of years, including the stack of hardware, software and service all come in looked at by one company. Mostly people go in China, Stampede and then bring it as if that they are building a soundbox or any other device in the country. We've not only innovated on the sound. We also innovated on cards, meaning we are not only innovative on QR but also on card, and we have further more devices and plans and road map further ahead.

So in my opinion, till the time period we are leading from the front, we are leading in front innovation, and we're leading in the distribution. I wonder that anybody's market. In fact, everybody else coming in the market expands the market. They are able to serve to a new, new hands very far away or a vertical -- a particular cohort of a customer whom we would have not reached. Out here, we are completely committed to dominate acquiring side business in this country.

It means we continue to increase our manpower on distribution. We will continue to out-innovate on execution of the devices. Here, the software and hardware combination works in our favor and the monetization of what we are doing works in dramatic in our favor, like you said, credit and so on. So once a merchant has an incredible product for payment, and value-added services like credit that we've suggested, he's got from our partners, it becomes a lethal incredible combination of scale. Like I said, I'm going to repeat it, acquiring payments for India is what Paytm's mission when we started was is and will always be and we'll dominate in that.

[Vijit Jain, analyst]

My second question is just -- if I look at since the RBI restrictions were imposed, right, you've added maybe 20 million monthly transacting users in the 4, 5 quarters since. So once these restriction lift, are you looking at trying to -- should we expect a rise in [key] number of E-KYC customers that you would like to then have? And is that restriction kind of impeding you from growing in the personal loan side, for example, because you can't E-KYC any new customers in the last 4 to 5 quarters.

[Vijay Sharma, executive]

One of the most important thing that you should know is Paytm Payment Bank and Paytm, which is OCL, as we know, are 2 very, very different companies, not just at arm's length, I call it farms length now. And the approach here is of a completely clear understanding that whatever Paytm Bank does, is for its good and for their business plans.

What Paytm does is what business that we are in, this is acquiring the numerous for various consumer payment products and then serving the merchant and value adds. Here, we have permission, as you know, UPI is the way to acquire the customers, and we've been able to fundamentally do a good job of it. In credit, when you were talking about, I also sit on a selection bias of customer where we believe that long old customers on our platform is better suited to get credit disbursed from our partner versus a new incremental consumer who would have a very small sort of footprint on our platform.

And I'll bring it in various conversations that imagine we are short of some million, for 100 million. And for our calculation sake, I'll take, let's say, if we have 100 million monthly users. You're talking about penetration percentages, which is 1% today. And I mean, in a peak movement, if we ever would have crossed 20%, 25%, 30%, let's say, I mean, think about it that what is a good tag rate of a product. 10%, 20% or whatever that you want to take it. There is a huge upside, and that puts us also us into a dramatic distribution of credit volumes as dollar value, rupee value here.

For our credit business to grow, we actually do not need incremental consumers on our platforms. It is better for us to farm the current customers and penetrate on them instead of acquiring new consumers. In fact, for the current customers, expected penetration, you know what different credit franchisee in banking and in nonbanking sector that you see, this is incredible good opportunity for us to enable small credit to the customer base that we have. And that is the beauty that we are chasing.

In other words, I'm not only going to say that it is what does not matter, I'm actually going to say, as a strategy, we may not see large number of consumers on our platform by definition.

[Madhur Deora, executive]

If I may just add to that. When the RBI embargo came, we had said that this -- we don't expect it to have any significant impact in the business. I think the reverse is also true that once the embargo is lifted, and we're signing up more customers for wallet or bank account and so on, which as Vijay said, is sort of bank's own strategy and road map and investment and so on.

We don't expect that to have sort of any direct impact on either Paytm MTUs or Paytm lending business. Because there's no such dependence per se. So for example, you mentioned a specific point around KYC. So the bank doesn't share KYC with lending partners. When some Paytm takes a loan on Paytm app, our lending partner does the KYC for the customer in that role.

[Vijit Jain, analyst]

My last question here, just on the payment gateway business, when you do business with online merchants, third merchants outside of the Paytm app, is -- are you still gaining market share there? And as you keep adding these new Paytm instruments like postpaid, et cetera, is that kind of helping you in kind of getting greater market share on the payment gateway business. Is that how you look at it? Is that the proposition? And how do you see market share evolving in that segment?

[Bhavesh Gupta, executive]

So, Vijit, we -- the the reality of the e-commerce business or the third-party business, as you call it, is that while there are lots and lots and lots of companies who are in the online space. But materially contributing GMV companies are maybe, let's say, about 1,000 companies who generally dominate 80% to 90% of current volumes that are there. Now the idea here is what the companies require and what Paytm' offer, it's a technology play.

And that's the reason we win more often than not over anybody else. We're able to offer them the best payment gateway technology because this technology was built to handle the Paytm app traffic, like add them to wallet and managing a lot of commerce activity from the Paytm app. That's where the technology got built. And this technology is now available to our merchant partners, et cetera, who then consume technology.

So I'll just give you certain examples, which should give you some more clarity, products like allowing the merchants to use real-time monitoring of transactions, success rates, which funding source is going through, what price is going through, giving them SDK for UPI, giving them routers, which can allow them to route multiple connections to multiple complicated gateways without taking the technology bandwidth. And the latest one that we've done is on affordability stack that you can aggregate any kind of EMI of debit card, credit card, UPL in credit limit, et cetera, it just makes the entire proposition that is very dominant.

And I'm very glad to inform you, year-on-year basis, down the line business has grown very, very handsomely and healthy. And our net payment margin online business has grown, just letting this notion but this is a very competitive space actually get defeated that we are actually moving in the right direction and getting more market share. There is no data available on market share. But in our opinion, we continue to be a very formidable player this area, and we are getting in more and more inroads into merchants where we may have had a lesser share of the e-commerce flows.

[Operator]

Next question is from Punit Bahlani from Macquarie.

[Suresh Ganapathy, analyst]

This is Suresh Ganapathy here. So just quickly, a couple of questions. One is on ESOP cost, I'm looking at is the number. Actually, Madhur is higher. I mean what I mean is that for the past 2 quarters, you have reported INR 7.6 billion, and if I look at the full year last year number was INR 14.5 billion. So this number was supposed to go down in FY '24? But if I look at FY -- the first 2 quarters, it looks like you land up ending FY '24 at a number higher than FY '23. What is happening here? Please tell with some clarity.

[Madhur Deora, executive]

So we had actually said that starting August '24, this number starts to go down. If you look at our December presentation that we had done in person, which we have been posted on the website in the next year, there is a slide on a static basis, how does the ESOP cost evolve. But then we had also added commentary that this is subject to change, basis lapses of ESOPs, which we don't control because that is usually linked to employees leaving.

And new ESOP grants that we do usually at the time of appraisals on new joiners. So the actual numbers we had called out would be slightly different than that, most likely slightly higher than that, but that was supposed to be a directional number. For the year, we expect these ESOP costs to be similar than to last year. And then there's a directional schedule which for now you can use the December presentation from last year. And next quarter, we are going to share an updated ESOP schedule based on all ESOPs granted until now.

[Suresh Ganapathy, analyst]

Okay. And the -- on this Personal loans, I know there is a lot of debate. I just wanted to know how we could think about growth here because this is the lowest Q-o-Q growth, both in value as well as volume perspective. Now the base is also getting tougher and bigger, right? I mean you have reported for the first half close to 130%, 140% Y-o-Y growth in this business in value terms. With each passing quarter or year, this number will trend down, right, even if you add more partners.

How we should look at the growth? Because on one hand, you are talking about the fact that the penetration levels in MPO is very low, right, 1% or whatever soundbox merchant loans. So are you confident about not asking for a specific number, but doubling for the foreseeable future?

[Bhavesh Gupta, executive]

I think Suresh, this is a great question. The answer will be broken in 2 parts. And I don't want to give a direction for the number, as you rightly said. Personal loans for the future, let's say, at least for the next couple of quarters will remain muted. So if you were seeing, let's say, 100% growth, 150% growth in the previous years, we would not see that kind of growth. My sense is anything about 30% to 40% year-on-year growth even on our base is a decent growth that we can expect in Personal loans.

Merchant loans would be growing much higher because we do see that as we are penetrating a lot more on Soundbox in the market, the eligible base of merchants who have a on box and has the GMV, which is meeting the risk criteria of a lending partners. That base continue to seek growing on a lag of 6 months. So we are more bullish that we will see merchant loan growth in excess of 50% to 60%. So if I give a stable case situation, I think anything between 40% to 50% on a blended credit basis over the next 2 to 3 years should be a growth that we should start seeing from here on, on the base that we sit on today.

[Suresh Ganapathy, analyst]

So just one last point, stressing on this Bhavesh, because when you say your ECL losses are, of course, as I can see for the last 4 quarters in Personal loans have remained stagnant. What makes you take this decision? I mean, are you looking at your customer profile and seeing over leveraging kicking in or you are worried about the Bureau data not giving you good good pillars? Because somewhere down the line, you have to experience to take this call, right?

[Bhavesh Gupta, executive]

Yes. So I think, Suresh, the -- we took this call, as I said, 3 quarters back in our commentary, if you go back into archive, you will see the 3 quarters back when nobody in the market was talking about this. We saw 3 data trends. Very clearly, people who were taking personal loans for the first time, we were seeing they getting into early delinquency much faster in the system, which at least in my experience of managing this business for many cycles is always an early sign.

The second thing we started to see was that early tenures, 3 and 6 months in your credit we're seeing much higher leverage. So these people, we could see much higher entry rates and much lesser collection efficiency than what we were seeing earlier. So we first remove that bucket completely that we will not do anything which is 6 months and below. We'll only do 9 months to 30 months kind of credit. That's the reason why our number of loans also went down. That was the second time we saw.

And the third trend that we started to see was that in certain aspects of the segment, which was coming in metro people who had multiple credit cards, we could see, again, the leverage becoming much higher, and they were taking more credit on EMI, et cetera on themselves and this was very visible in our exercise that we were doing with lending partners.

So accumulation of this we could see that this may become a bit of an issue, especially with repo being high, the overall environment or macro being what it is, it is better to be conservative. And that's the reason we cut down much earlier and hence, you're seeing a stable portfolio with a lesser growth versus maybe we could have continued to grow, and we're going to see maybe 0.5% to 1% higher ECL, which we were not wanting to. So that was a good call in the hindsight, and we'll continue to maintain such costs in the future for the rest of the portfolio.

[Operator]

Next question is from Pranav Gundlapalle of Bernstein.

[Pranav Gundlapalle, analyst]

Just a couple of questions. One on the postpaid product, particularly, would be helpful to understand what's the number of merchants that currently accept postpaid? And what percentage of that would actually be paying an MDR for that, right? So that's the first question.

[Bhavesh Gupta, executive]

Yes. So Pranav, I think we report this number annually out of the 41 million merchants that we carry on in off-line, almost more than 20 million people, merchants have signed up to accept postpaid. Not all of them, obviously, pay MDR. That number of merchant paying -- who are paying MDR is close -- is less than about 1 million merchants who are paying MDR.

But what's important here is that we, as a part of the approach do not necessarily even mandate in offline world and all in every merchant pays MDR, but in offline world, we do not mandate MDR charging up till postpaid as a percentage of what they do in a month on Paytm acceptance crossing at least a double-digit number. So if you're operating and let's say you're doing a GMV of INR 10,000 and the total postpaid GMV is, let's say, INR 1,000 or maybe INR 800, most likely, you will not be even charged as an offer in the system.

Only when we believe we're able to add material value in bringing in customers for -- of better credit product like postpaid loan into your shop, and we believe the merchant will appreciate value, we start to have a cascade of MDR being charged starting from 50 basis points going up to 1.25%.

[Pranav Gundlapalle, analyst]

Understood. Very clear. The second question was on your employee base. I think you mentioned -- I mean, you do disclose the number of sales employees that you'll have. If at some stage in distant future, you will start seeing plateauing of the devices numbers, what percent is the current employee base would you require to service that base of installed devices? In other words, of the 35,000 people what would be the rough distribution between sales and servicing?

[Bhavesh Gupta, executive]

I think this is a good question. We have not disclosed the number, but I can give you at a range bound number because this number is something that we track very closely. Close to about 15% to 20% of our sales force currently is involved dedicatedly in what we call servicing, but servicing is not just going and servicing the device. Some also to do with merchandising, branding, managing what is called on the shop query and then obviously managing device servicing, et cetera.

I think the other question that you asked initially [ FTC ] plateauing, Fortunately, we do not see plateauing for the next 3 years in this business, and there are multiple reasons vijay also has mentioned about it, innovation that we've been able to make in products is just expanding the market. So as an example, if you look at Pocket Soundbox, Pocket soundbox is a completely new area of merchant onboarding.

We're seeing this product now available at railway station, a bus stations, people who are kind of bending out in buses or a railway station love to have a Pocket Soundbox. We're seeing auto rickshaw drivers, taxi drivers, door step delivery guys managing Pockets Soundbox. Now this market did not exist in the physical soundbox or the product that we had earlier.

So I think, we've remain very confident that at least for the foreseeable future, a minimum of 2 to 3 years, incremental device deployment and hence, the consumption of sales flow that we have today and expansion of it will both continue hand-in-hand. That as a service infrastructure will also keep increasing. But at any given point in time, it will remain to about 20%, 25% of total people that to be on the ground.

[Pranav Gundlapalle, analyst]

Understood. Very clear. Last question, if I may. I mean, maybe related to the first one. This whole talk about credit line on UPI and how that could take off. One of the questions there is how willing would merchants be to pay an MDR on these kind of products? Would it be fair to say even for a credit line on UPI, the penetration of merchants or the ratio of merchants would pay in MDR will be similar to what you're seeing on postpaid, maybe about 1 million out of 20 million to 30 million?

[Bhavesh Gupta, executive]

I think the answer has to be again split. We cannot or should not broad base this answer. So when you talk about credit on UPI, let me first articulate, it's a fantastic opportunity for India to see bank account, credit lines, getting acquiring side opportunity of disbursement, which has never happened. It is much, much, much larger as an opportunity versus credit card for all, let's say, almost 40 years in this country.

Only credit payment product available was a credit card before Paytm got in the Paytm postpaid, which is mobile credit. So this is a fantastic innovation and one we applaud NPCI and RBI to have been able to create this product for the Indian consumer. And I think it will revolutionize the way the entire credit disbursement business happens through mobile phones. Now having said that, there is a decently large set of business where consumption of such credit will happen in the online space and enterprise space.

So the way to see this piece, it is not everybody carries a debit card in their pocket, and not everybody has a credit card, right? But you definitely have a fall. So if you're walking into an off-line store or online store, you will be able to access UPI credit line or credit line in a bank account through UPI without any friction of a plastic in your hand. So it just opens up a very, very large opportunity in the market, and that is an MDR ping opportunity.

Now when you come down to a pure play, semi-organized or small businesses, yes, it could takes some time, bill and pay the MDR or not pay the MDR, and it will take some time for them to start to appreciate what level of incremental consumers the merchant is seeing this product is bringing to the shop and then MDR will follow. So there will be a bit of a learning curve. I don't want to say, will the merchants who pay MDR currently on credit cards or on postpaid or any other product will this be a similar number?

My sense is on a longer arc, you take a 3- to 4-year view, you will have a very, very large number of people who will appreciate accepting a product like a UPI credit line at their shocks if they were to bring in incremental customers or if they were to bring in higher average sales price because of affordability to credit come into their shops. If you see value, they'll be MDR.

[Operator]

[Operator Instructions] Next question is from [ Pranav Tendulkar ] from Rare Enterprise.

[Unknown Analyst]

So I just had to ask 2 questions. One is that in the strategic presentation that you did in December 2022, you already had focused also on the business of brokerage. So any development there that is you can share? And also second is that I always feel that Paytm has a main reason for why people like use Paytm like there is no friction. And that's why I always feel that there is a huge opportunity where there is a nondiscretionary product like, say, ETF or any nondiscretionary product where people are just worried about the friction in the payment?

There is a huge opportunity that Paytm can capture as compared to other distributors, et cetera. So any thought in that line? And just third question that if Paytm UPI cards, like UPI credit cards work then -- will it result in our payment amount going up and also MDR going up?

[Bhavesh Gupta, executive]

Thank you. Definitely, you just pointed out, correct 2 opportunities in wealth business. We definitely are putting our energy and resources on those directions. And we do believe that there is an opportunity to serve simple wealth product to large audience, and that is the direction that we continue to work. And like I've said, this is one of our future long-term bags, so we are there.

And you said it correctly, when credit cards -- RuPay credit cards comes on to your core UPIs, the GMV or credit cards grows and the single thing that is important to be noted here is that merchant has to accept that I will take MDR bearing instrument on UPI. Which is why you would see at many places, this is not enabled versus enabled and so on. So it will generate large GMV of credit card potential revenue in UPI.

[Unknown Analyst]

Right. Anything on the UPI remittances that we are doing? That's it.

[Bhavesh Gupta, executive]

That's in pilot stage. It's -- I think it will take some time for cross-border on UPI to scale up. But we remain very bullish on that opportunity of innovation at that NPCI has been promoting and we are very positive participants in the ecosystem to promote such products. .

[Operator]

Next question is from Jayant Kharote of Jefferies.

[Jayant Kharote, analyst]

Congrats on a great set of numbers. First question would be on the PL thing. So if the smaller than our PL sort of moving out, how has that affected the mix between, say, BNPL, new to PL and repeat PL customers in this quarter versus last quarter? And how should we think about it going ahead? That's first. And I'll go for follow up after this.

[Bhavesh Gupta, executive]

Yes. Thank you, Jayant. So it's not impacted materially. It's just the fact that it's lets say we were distributing 100 loans of personal loan. The mix generally was that about 40% of them were getting upgraded, who had an earlier postpaid loan line available to our partners. Around about 25% to less than 30% were existing personal loans who had paid off their personal loan and they were eligible for next loan, and the remaining were people who are coming and taking first-time person on through the Paytm app.

The only difference here is that the renewal base has increased and the postpaid upsell basis decreased by 5%. So that's how the counterbalance has happened. And it has decreased because we took a proactive call with our lending partners 3 quarters back, that we don't want to distribute credit up to 6-month tenure because we found some early trends, which are not very comforting to us and our partners. And hence, that's the slowdown that we did in that business.

But in the future, if we do find that it gets to stability stage, we will relook at that thing, but no other material change.

[Jayant Kharote, analyst]

Great. The follow-up is actually the same thing which you sort of answered in a way. But then if the BNPL to PL customer migration, let's say, on 1 month, 6,000 ticket size customer moving to a 3- or 6-month product and what's calibrating the ticket size upwards with different products? If that is sort of getting impacted because of the credit behavior of certain growth, how does this play into a new product line effect? We would have some products lined up in the next, say, 6 to 12 months or 1 to 2 years? And then how does this play into that? Because then you're having the large wide space between your entry-level product and then what starts after [indiscernible] that onwards?

[Bhavesh Gupta, executive]

I think in the credit business, Jayant, as you will also appreciate, we have to calibrate how we look at growth versus how we look at portfolio and the macro. We are very conscious of that. We are currently in test on ensuring that we build a great portfolio with calibrated growth, especially on the unsecured PL business, as we mentioned. And we are indexed on growing our merchant credit, BNPL, et cetera, et cetera, much, much more aggressively.

So from an overall mix perspective, it may change a bit more towards merchant credit versus personal loans. But from opportunity and everything else, there is no material change. And I don't think there is any strategic new development of new lending line, which gets impacted because of this because any new strategic business line that we intend to open, while we have not currently decided which is the line that we want to open is contingent on how the overall portfolio plays out.

I say portfolio and the macro is not playing out, and it's not conducive, then obviously, we calibrate appropriately. But at this point in time, we're not seeing anything. This is a very small part of the business of PL, a couple of hundred crores that we have pruned down and still the growth has been decent and will continue to remain decent in the future.

[Operator]

Next question is from Nitin Aggarwal of Motilal Oswal.

[Nitin Aggarwal, analyst]

So, few questions. Like one is on the net payment margin, we have seen an increase this quarter, which will -- like has been suggested due to price and in the mix, non-UPI instruments. So how sustainable is this? And can we see, therefore, higher net payment margins in the [indiscernible] versus the latest that we have?

[Bhavesh Gupta, executive]

Yes, I think this -- you may not see higher. The reason for that here is that the adoption of UPI both at the online, offline merchant as a share to total GMV, we are seeing the growth in penetration in that area. And that obviously is not net payment margin bearing in our system. The works that we've been doing over the last 12 months, especially on credit card side, driving affordability, enabling brand EMIs on online and offline. That has resulted in the net payment margin going up for us.

That is a bit of a seasonal business, as you can imagine, because the business last year was very negligible and last quarter has become arguably very, very large compared to what is the opportunity in the market. We could see one-odd quarter further wherein you could see some tailwind in net payment margin, but it will still remain a range bound between 7 to 9 basis points.

[Madhur Deora, executive]

Just to add, Nitin, we're not changing the long term what we have said 5 to 7 years. But I think it's fair to say that when we gave that roughly a year ago, we had not expected a lot of these tailwinds that we have seen as well as the disciplined execution from the team, especially on non-UPI instruments. So we are certainly ahead of where we thought we would be a year out.

[Vijay Sharma, executive]

I'll take a part to some more things. So what I'm seeing is that when we meet regulators, and we [indiscernible] and different people, so there is a continuous state around we are on UPI. So different cohorts could be opened like we have RuPay card and plus INR 2,000, there is in MDR. Prepaid, there will be an MDR.

So there is these nuances where there is an attempt of driving transaction-based, MDR based payments on UBI. While we are not factoring in, in the 5 to 6 bps guidance, I do believe that there is this attention that our team has been able to bring on credit-bearing products and international card, prepaid, et cetera. And obviously, the festivities and the next quarter even more facilities, I can tell you this, that means that EMI, obviously, is a phenomenon in this country in these days, these days, meaning these quarters of the year.

And so we're talking about that -- that's why we are conservative and we're saying 5, 6 bps, but there are like these positive green shoots out there in longer term. I'm talking arc of 2, 3 years where this could grow further ahead.

[Nitin Aggarwal, analyst]

Now -- and the other question is on the fee per device. While we have like [indiscernible] is a very aggressive rate now, but at the same time, the mix is going to change and you are talking about the Pocket Soundbox also. So how do you see the blended therefore fee per device trending over the next once you use because that's going to be a very sizable number to the overall P&L? Any competitive intensity that can drive down the fee? Or how do you see this all?

[Bhavesh Gupta, executive]

So currently, competition intensity is not driving the pricing of the product. the pricing product is driven by what kind of product we intend to sell in the market. You're right. Pocket Soundbox brings in lesser fee, Card Soundbox brings in larger fee and Music Soundbox again, gets a larger fee. But on a blended basis, we remain range bound between INR 95 to INR 105. That's the range that we're operating even now.

And I don't see that range change materially unless enter some disruption, the market happens. When that happens, we will respond to that at that point in time. But at this point in time, we remain very confident on maintaining $100 on average on a device basis for a longer future.

[Madhur Deora, executive]

I'll just add that the way we think about this is sort of payback periods versus life of device and so on. And this area is very dynamic because of all the innovation that we have done. So as a shorthand, I think we'll continue to use the framework that we had discussed last December, which is what Bhavesh referred to. Over the long period, I think maybe there's tweaks to the framework that will be required to sort of better understand or model the unit economics of various types of Soundboxes.

[Nitin Aggarwal, analyst]

Right. And lastly, it is on the take rate in the financial business. While you have indicated that we are expecting them to increase. Any color you can provide in terms of where do we really see that moving in the next 1, 2 years? And how are the partners taking it up to because in general, there has been a bit some of caution on the unsecured loans. So how comfortable they are with [indiscernible]?

[Bhavesh Gupta, executive]

Yes. So I think one good thing that we can say for Paytm and obviously, the partner to work with that both of us are joined on a common objective. And the common objective is not to build a large business. The common objective is to build a great portfolio, which can result in making a business larger and longer arch of a credit business, because you can always build a good large business in the short term, but it may blow up in the future.

So from that perspective, our end new partners continue to remain very committed to the business that we build with them. And we'll continue to add top notch, AAA NBFCs and very, very early in next quarter, we should be able to announce a couple of banks also. So I think the take rate story, we had mentioned, this is linked to what a market can offer at the repo rates that they're in the market. So we believe that a stable case financial services take rate is in the vicinity of 3.50% to 3.65%. So you will see some upside on take rates over the next couple of quarters.

And if we see -- as well when we see the repo comes down, is there any opportunity for us to recalibrate or renegotiate with our partners and the consumers and that may give us some further upside. But I think the best way to model would be about 3.5% to 3.65%.

[Operator]

[Operator Instructions] Next question, we have Rahul Jain from Dolat Capital.

[Rahul Jain, analyst]

Yes. Thanks for the opportunity. Just 2 questions. Firstly, we added this 0.5 million device each in August and September month, possibly boosted by manpower addition and also from the introduction of new innovative devices. So do we now plan to accelerate our pace of device addition from 1 month quarterly run rate to a higher run rate now?

[Bhavesh Gupta, executive]

Yes, Rahul. So we added new people because we could see massive demand on the back of new devices and generally, the product acceptance that the market is seeing for our business. I think it will not be a very, very large growth from where we've been able to demonstrate because it takes some time for the sales force to get mature to be able to add value.

So our sense is looking at about 1.5 million a quarter kind of a stable rate case could be something that we aspire for over the next 12 to 18 months as far as soundbox and cards are concerned.

[Rahul Jain, analyst]

So you said 1.5 million quarterly is what you would expect?

[Bhavesh Gupta, executive]

Yes, yes.

[Rahul Jain, analyst]

Okay. Secondly, in the Paytm money business, we saw a significant improvement in profitability in FY '23. So do we see this level sustaining and what we are doing to grow this business?

[Madhur Deora, executive]

Yes. So Paytm money has been growing very steadily. Rahul, so our business model, as you know, is we get customers for payments and then we upsell them to other products ending being the largest in other financial services, such as Paytm money. So what the outcome of that is we see steady growth in these businesses. So Paytm money has about 7 lakh annual active customers, which is the data which the stock exchanges share.

And that has been -- I know a lot of them are equity broking customers, F&O and so on. It's a fantastic business, very high margin. And if you can run it at very low cost of customer acquisition, then it's a very good business. So we see huge opportunity in Paytm money to continue to grow trading and investing in the country. And yes, it is financially becoming much sounder than it was 2 or 3 years ago.

[Vijay Sharma, executive]

And I would also want to add to what Madhur has already said that it is a great value-added and extra product from our side. In longer arc of time, let's say, a couple of years forward, we look at it as a customer retaining product we prefer customers creating more portfolios, picking up SIPs on our platform versus purely a trading revenue line item, which is exactly the product that we built and focused on.

In other words, idea here is that this is not a revenue monetization line item for us. It will continue to bring healthy revenues and we'll continue to invest in technology and product. We believe a large number of customers on our platform who have a portfolio of one of our product on our platform is what the true north of this business should go towards.

[Rahul Jain, analyst]

Sure. That's helpful. One bookkeeping -- sorry, if I can chip in, which is if you could explain which JV helped us increase profit in the quarter? And what kind of customers saw this write-off in the quarter?

[Madhur Deora, executive]

So both Paytm Payments Bank as well as Paytm Payments Bank is not JVs associated, obviously. So the line that I think you're referring to is JV and associates. So Paytm Payment Bank had good profitability last quarter. And our gaming JV, which is first games, which we own 55% of -- that also had improved profitability last quarter. So both of those businesses did well. With respect to the customer, it is related to an airline customer, which suspended operations last quarter.

[Operator]

Next question is from Manish Shukla of Axis.

[Manish Shukla, analyst]

Bhavesh, if you look at the Y-o-Y growth trends for volume and ticket size and here I'm referring to post-trade and PL. Ticket sizes have been going up despite the increase in volume. Now one obvious explanation is repeat customers getting higher lines. But do you see lenders willing to give higher lines to even first-time borrowers on postpaid and PL today versus 6 months or a year back?

[Bhavesh Gupta, executive]

Yes, I think it's a good observation. The -- we've not disbursed about 11 million credit customers in the last 3 years with various partners, and we continue to add about 400,000 to 500,000 new customers who are taking credit of any kind through the Paytm platform with different partners of us every month.

So the renewal rates and existing customer taking new loan rates are only becoming healthier. And as they become healthier, there is a much better comfort with lenders to give them a higher credit line. We haven't seen a reduction or increase in people who come to apply for the first time a postpaid or a personal loan or a merchant known from a lending partner. So that number line has remained kind of stable, that's not kind of drop or increase if that was a question. Renewal lines have obviously increased.

[Manish Shukla, analyst]

And for the last couple of quarters for postpaid, ticket size contributed more to growth in volume this quarter, that is the case with PL. Clearly, going forward, should we expect that for at least these 2 product lines, ticket sizes will be a bigger contributor to growth than volume?

[Bhavesh Gupta, executive]

May not be true for postpaid, but could be true for PL.

[Operator]

Next question is from Jigar Valia of Ohm Group.

[Jigar Valia, analyst]

My question pertains to the employee cost ESOP the sequential increase, should we look at it more like a sequential increase? Or still it is like once a year addition and then it should kind of sustain or should we look at a sequential increase to continue?

[Madhur Deora, executive]

Yes. So, Jigar, that's a good question. So we have historically sort of broken that up into sales employees and non-sales employees. And over the last 5 or 6 quarters, actually, both of those costs were increasing because on the sales side, we're obviously making investments to increase our device base and so on. And on the non-sales side, we were adding in financial services, in particular, in technology and so on.

So going forward, you should expect -- and obviously, there's appraisal impact in the first quarter of the year for annual appraisals, which we have been talking about for the last 3, 4 quarters. So on the sales side, you should expect this to continue to grow. In line with the device net adds that Bhavesh mentioned because we are seeing huge market opportunity at least for the next 2 or 3 years. I think Pranav from Bernstein also asked some long-term questions around that.

So there, in the near term, you should expect for us to continue to invest. On the non-tech -- sorry, on the non-sales employee side, I think we expect the growth to be very subdued going forward, if at all because there's a huge amount of opportunity -- we have done a huge amount of investment, and we see a lot of opportunity, including because of AI that Vijay mentioned earlier, which should show improvements not just in tech, but even non-tech because AI can help us improve a lot of our internal processes as well.

[Jigar Valia, analyst]

Got it. Can you give some perspective about the subscription charges for the upgraded devices? I mean, you mentioned about going up to INR 500. So this would all be for Soundboxes, right?

[Madhur Deora, executive]

Sorry. But just to be clear, the INR 500 is for the upper-end and Android device. So this is what we had said last December as well, when we have tried to clarify our business in simple terms. So the INR 500 is a very small percentage of devices. This is for the high-end Android card machine, which would be -- you can check it out on our website and so on. So that's not a Soundbox. That is an Android-based card machine, but it's a small percentage. Vast majority of Soundboxes are in the roughly INR 100 range. [indiscernible]

[Jigar Valia, analyst]

Got it. Last question is if you can give some perspective about the nature of business with the various lending partners. I mean if you can help us understand, differentiate like Shriram cap versus Tata cap in terms of the profile of customers they are targeting. And maybe slight differentiation -- of course, the traction is good as you have guided in terms of adding the lending partners, so congrats on that. Yes.

[Bhavesh Gupta, executive]

Thank you, Jigar. I think the different partners bring in -- join the Paytm opportunity of working together on loan distribution with different objectives. Shriram, as I said, has started with merchant credit, Tata capital has started with personal loans and the -- over a longer arch of 12 to 18 months migrate to other products in the system. Purely, if a question is more from a risk perspective, I think that's not very different. It could be very, very range bound, let's say, between partner A to partner B.

And the material reason for that here is that from a Paytm perspective itself, as we mentioned in the past that we ourselves are very, very conservative and strict as to which kind of users or merchants can get access to credit. That filter remains common, irrespective of new partner or old partners. And once the merchants user passes that filter, then the filter of the lender comes into play where they are looking at underwriting, et cetera, et cetera.

So I think there is no risk arbitration, if I may use the word that we look at in our business model, only arbitration that we look in our business model is which partner is able to service the need of the user or the merchant better, both in terms of pricing, loan amount and geography penetration, but not on the risk side.

[Operator]

Next question is from Rahul Bhangadia of Lucky Securities.

[Rahul Bhangadia, analyst]

Congratulations on a great set of numbers. Just if you could -- then a material uptick in the CapEx number for the first half, you could just give us a sense of what all has gone into [indiscernible]?

[Madhur Deora, executive]

Vast majority of the CapEx is devices. And if you're comparing first half to first half of last year, then the deployed devices has also gone up very meaningfully. We do think that there are opportunities in the near term given our scale to reduce some of these costs through -- because obviously technology gets cheaper over time. And we are working with our vendor partners to reduce the cost of devices. But the increase in CapEx is almost entirely driven by the number of devices that we are deploying.

[Rahul Bhangadia, analyst]

Would 1,200 per box will still be the benchmark here?

[Madhur Deora, executive]

No, it is lower. So I think of the soundbox portfolio that we have, 1,200 would be roughly the cost of some of the higher-end devices, whereas for the devices, it would be higher and Soundbox devices, I should just be clear, whereas for the other Soundbox devices, it would be lower and it has been trending down.

[Rahul Bhangadia, analyst]

Okay. Okay. So the question actually came from, let's say, roughly about 24 lakh, 2.5 million roughly is the boxes that you put up in the first half. And the CapEx has been about INR 480 crores. So that's the set kind of disconnect there?

[Madhur Deora, executive]

Yes. But there is a small percentage in terms of volume of devices, but -- which does skew the blend upwards because of the card machines, right? So the card machines, why they're a small percentage costs about INR 5,000 to INR 7,000, so that will be significantly more. And only about 80% of this -- about 80% to 85% of the CapEx is devices, the rest of it is things like laptops and servers and so on.

[Rahul Bhangadia, analyst]

Should we expect this run rate to continue maybe INR 500 crores to a first half INR 1,000 crore per annum [indiscernible]?

[Madhur Deora, executive]

In the absolute terms, there are no aberrations in that number. So you should expect that to continue. But like I said, we should be able to do more devices for the same amount of CapEx for the [indiscernible].

[Operator]

Next question is from Pallavi Deshpande of Sameeksha Capital.

[Pallavi Deshpande, analyst]

Just wanted to understand on the ONDC platform, what do we charge the sellers? There were reports of buy charging? Second would be, do you see government coming in to limit what you can charge these? And finally, what is the opportunity size that we are seeing here?

[Vijay Sharma, executive]

Thank you for asking the question Pallavi ma'am. The biggest thing that I want to share here about ONDC is the first thing that ONDC is done in partnership with us is to concerned Paytm, e-commerce Private Limited where they hit the ONDC chain and hook to the network, and we as OCL get advantage of disbursing on our platform. Second thing is the charging is in that sense, created in a way that we are all doing invitation charging there. There's no regulation, by the way, there's no intent of ONDC to even intend that this amount will be kept.

It is the classic nature of network concept here, that the many number of players will be there who can serve same merchants. So they will try to bring more value-add per percentage point they charge. We don't have a very -- I mean there is an invitation pricing is a very much intended statement that we don't have a very fixed percentage to all merchants. We have different, different cohort and category, et cetera, of merchant to do it. Our focus will be just like we have learned in MDR model that instead of doing MDR, you could do subscription kind model, we are tilted towards that when we look at it long term.

[Pallavi Deshpande, analyst]

Right, sir. And sir, what would be like in terms of GMV, what can it add 1 year ahead? I know it's early days, but what can it add to GMV? The guidance which you have?

[Vijay Sharma, executive]

I don't have a 1-year guidance. I don't have exactly that, but I have a long arc guidance. In the duopoly markets of commerce, there is an obligation of a third player, which would come with the power of ONDC of the size of the duopoly of the one of the players in the market. One time, it will be the combined category of all ONDC consumer players. And over the period, big players will come, and I see it happening that way.

[Pallavi Deshpande, analyst]

Lastly would be back to the loan business, if we would be looking at going lower into the smaller towns away from the metros of spending on rapid footprint?

[Bhavesh Gupta, executive]

We already are in smaller towns in the sense. We currently service more than 250 towns for personal loans and merchant credit and more than that for Paytm postpaid. So yes, so there is no smaller town restriction, if I may use the word. And itself function of opportunity demand and as well as the partners risk appetite and correction capability in those towns.

So as and when we believe all the three matches happen, we keep adding more towns. So this year, we would be adding another 50 to 60 towns in consultation with our partners across these businesses.

[Pallavi Deshpande, analyst]

The 500 locations you have, that's for the payment business, right? Right now.

[Bhavesh Gupta, executive]

That's for the payments business. Yes, we don't offer credit in all the funded locations. We offer credit, you can see we're taking about 250 of them.

[Pallavi Deshpande, analyst]

And what's the growth in the 500 number we look at for this year?

[Bhavesh Gupta, executive]

This year, we will not be growing 500, but next year, every year, we typically add between 50 to 100 towns. It's a function of a lot of data that we ingest smartphone penetration, connectivity, what kind of merchants or kind of moving in those markets, et cetera. So whatever the data sets to us, we have a long list of towns that we want to end up and some of the satellite towns start becoming main towns where we will have our employees kind of serving in those towns, et cetera, et cetera. So yes, so -- but you can take about 50 to 100 towns will keep adding every year.

[Pallavi Deshpande, analyst]

Right. And just back to that ONDC what is the...

[Madhur Deora, executive]

Sorry, , I think I apologize -- I don't mean to interrupt. Maybe we can connect offline? Because we have run out of time and there's 1 more person in the queue. So maybe if you can write to [e-mail], then we can take all the other questions. Thank you, ma'am.

[Operator]

Next question is from [indiscernible] of [ HSBC ].

[Unknown Analyst]

I just have a couple of questions. One on the cash and on the lending margins. So I mean, if I see the cash balance on the earnings release and financial results, I mean, can you correlate or provide more clarity on the disclosure of cash balance on both of the reports and they seem to be different? And secondly, could you provide a directional thing -- I mean I know we have had a discussion on the margins. But if you could provide a directional on the lending margin, do we see a little bit on the upside movement or a downside movement going forward?

[Madhur Deora, executive]

So, Deepak, I think on the second question, I think Bhavesh already answered that in relation to someone, someone's question earlier. So maybe I'll just refer to that. And obviously, there will be a transcript of the call just in the interest of time.

On the first question, we have shared the cash balances in our earnings release, it's about INR 8,750 crores. It's a growth of about a little over INR 300 crores quarter-on-quarter, and there's also a commentary on where that is from. Obviously, there's EBITDA, there's interest income, and we continue to make improvements in trade working capital as well as settlement working capital with our merchants.

So those have been the drivers. Of course, there's been CapEx as well, both in this quarter and last quarter. So that's the main use of funds, if you will. So I'll refer to that. I think if you had some specific observation between 2 numbers matching or not matching, then you could perhaps share that with us on an e-mail, and we'll be happy to connect with you offline.

[Operator]

Thank you. With that, we come to an end of this call, a replay of this earnings call and the transcript will be made available on the company website subsequently. If you have more questions, please reach out to us on [e-mail]. I repeat [e-mail]. Thank you all for joining.

[Vijay Sharma, executive]

And everybody, thank you, and [Foreign Language] from all of our side.

[Bhavesh Gupta, executive]

Thank you, [Foreign Language].

[Madhur Deora, executive]

Thank you.