Vijay Shekhar Sharma: Our core business has dramatic profit opportunity: Vijay Shekhar Sharma
What is the moot point in Davos this year? When I speak to folks who are at Davos, some are worried about inflation, some are worried about recession, and those who are not worried about are worried about growth in general?
One thing Davos is telling us is that world looks up to India as the next growth engine on a dramatically more serious way than we could have thought. In other words, thanks to the recession that the world is going through, we have had a resilient economy. We have had an economy that does not go through the risk of recession. So my belief here is that we are clearly the economy, the world is looking up to. It is up to us as a country, it is up to us as people how much of international investments, how much of international economy companies we can bring to our country. I think this is an opportunity. Investment or countries both are for us to grab.
Is the world looking at technology stocks differently. The global tech stocks have seen it out. The big tech companies are in a mode of not hiring but lay off. Interest rates are moving higher and growth stocks are getting punished. Do you think we are in for a rough patch for global tech companies and for global tech stocks?
I think as you can very well see that there was a lot of quote, unquote, “free money” that was accessible to the market so the companies built their business models or investment plans based on the cost of capital which was dramatically lower.
And when the inflation has come back, interest rates have come back in US, the growth or the obligation to invest for growth has come down. Now technology companies usually have been that we will put the money in the next venture, next investment cycle, next need, next product or next side of things.
You rather should build a business model or build a business which is generating free cash and preserve the money.
So I would say that technology investments have gone through from a dramatically risk resilient to a very risk-averse state. And that is why the stock or the public markets have reset the valuations including all the biggest guys in the world.
In my opinion, what good thing that us as
have been able to do is that we have not set our business model based on the cost of capital or we have not set our business model based on the interest rate cycles or so on so forth. We are here with very clear understanding of customers who are on our platform. We have become dramatically prudent about spending money, whether it is about customer acquisition, marketing or about expanding the platform while signing up merchants.
We are actually respecting and valuing customers who have revenue, visibility, profit visibility in our cycle. And that gives us an opportunity. We believe that we will grow our business, revenues and growth because we are coming from a small base equivalent of a growth economy company. And we will also be able to generate good profits, free cash flow, in fact in next few quarters we believe that we would be able to bring up all this because we have had to focus on the execution which is led by revenue and profitability focus. So, I believe that global technology companies are going through the reset because their capital excess has resetted while as far as India is concerned capital excess was never of this kind of free flow.
So, the fact that Paytm has announced a buyback and you are in the middle of a buyback. What was the temptation you had to announce a buyback; was it to support the stock price or the cash usage now is some kind of an indication that Paytm in order to grow does not need that kind of a cash?
I don’t think that we as a management have any control over stock price and I say this very often to our retail people who I meet on the street and I also say this on television that look the best thing that we can do is we can disclose more, we can detail out more, we can do more interaction and even better thing that we can do is that we build a company that generates profit because the biggest overhang on Paytm has been whether this company can make money or not.
In my opinion in last 12 months I salute and respect my team who came together to build an opportunity for us to generate revenues that are quality revenues.
If you see the losses that we had have started dramatically reducing and we believe that we will be able to deliver profit much before our guidelines. Now that being the case, in my opinion buyback was intended to signal the message that we have capital but the amount of capital we need could be made to a better prudent use in a open market buying shares and whoever wants to sell can sell.
We would take that as an opportunity for our capital to become useful for us in a much better way than sitting idle in a treasury or some other place.
From a high of 2022 to the low of 2022 it has been a fall of about 65% for the Paytm stock. Does that bother you? Does that worry you? Nobody wants stock price to go down but are you worried about it? Do you get wrinkles for to speak?
Personally as the chairman and CEO my job is to give incredible returns to our shareholders, build a company which is long term successful and build a company that is long term resilient. I can tell you that priority has been long term resilience and to make Paytm a successful company which generates profit, free cash and we are executing on that.
As far as stock market is concerned, only one thing that I have learnt is that it has many more variables. It could be global, local,industry sector, sector specific and so on so forth that could define the price.
I mean as an individual I do not like it. Who would like it as a promoter or a person who has built this company or the founder of this company, CEO of this company, at the same time we also know that wider market has a pricing influence not some set of individual or set of companies could decide by themselves.
What you have said is that you will reach a EBITDA breakeven in September 2023, that is next financial year. When you are saying that you are rightly to reach a breakeven earlier, are we looking at Paytm becoming EBITDA positive in the first quarter of the next financial year itself because that is going to be a big breakthrough for Paytm?
I am not going to give the number of the month or quarter but I can tell that in September 2023 we will definitely be able to beat it by significant high pre-results. We believe we will be able to deliver profitability way before September 2023. Obviously, you will see this quarter’s numbers coming very soon and hopefully by the time the picture would get far more clear.
This is also a challenge in terms of the supply which is coming to the market. Two of your largest investors — SoftBank and Alibaba have been selling in the market. So, while incrementally as the chairman and the CEO you are trying to fix the business in terms of the trajectory where it is moving and that is quite commendable, but for minority shareholder the challenge is that you got two large investors who are ready to sell and there is a huge supply which is really coming up.
I think these all shareholders do not talk to us, do not discuss their selling strategy. In fact both SoftBank and Alibaba did not have any board representation or any strategic relationship with us for last more than two years which is effectively the reason that they probably one point of time or other would have wanted to sell certain equity and take the cash from the table. But I can only say that that every investor is now free share, at the same point of time what we have seen is what we believe that is why they were very conservative about even board seats, etc, which they had a right on. So SoftBank had a right on board seat which they did not have it for more than a year and like I said that Alibaba has never been a strategic shareholder for us so they also sold and as a management I can tell that we get to know once the block has hit market and we get to know who is the seller at the end from the exchanges.
So let us understand about the credit business. The credit business is one of the highest growth business for Paytm as we speak. In the credit business your MDR is very high. It is about 4% plus. Could that run into some kind of regulatory overhang?
I think our margins are growing because of the subscription product. The subscription and the payment business that we have been able to discover and then the commerce business that we have been able to discover. Those are the things that are driving the market.
And as far as the credit line item is concerned, it is significantly technology led. I mean the team is not even 100 people, so you are here talking about very small team.
I think the business model is a technology business model. It is not capex or large number of people requirement business model. Our number of people that we deploy is around acquiring merchant and expanding the platform in the merchant network now that is where we have continued to keep the investments and we have said that we have the number that we want to reach there in number of people basis. Not dramatic large increase and that is why our almost all the revenue that gets netted comes towards the bottom line.
I like to also draw your attention to the international business. You have a presence in Japan, the technology in terms of UPI is now becoming more like a global technology. Your technology is widely accepted. Are you getting ready to take a giant leap forward in terms of taking Paytm global, is that the next growth frontier you could be exploring?
Yes so Paytm QR is what UPI QR inherited. So Paytm’s QR became the nation’s QR and now UPI with many other stakeholders, we are very proud of participating in the size and economy of India. PCI has done a tremendously good job and I am so happy that together with them we do so much of incredible amount of inclusion and innovation on payments. When it comes to the rest of the world, what we are seeing is there are payment and credit combination with commerce is incredibly at influx moment in our country.
Now, international always remains an opportunity to look at it but not for us in next seeable future. I mean I would rather say that if we even would have thought earlier that sometime we will go international, right now the opportunity is “hami asto, hami asto”.
So Paytm will be profitable in 2024. What is that Paytm is doing differently and how will VSS and his team ensure that growth does not get compromised while your path to profitability will be achieved in 2024. What is that you are doing differently?
Simple things, earlier when we used to line item wise make money, we would expand another line item of business. Right now what we are saying is that the core business now has dramatic profitable opportunity. Earlier we were not sure whether payment will make that much of money, we were not sure whether credit will be accepted by people at a scale that we are looking at and now that we have seen it, we are saying that oh! we do not need to discover newer frontiers to make newer money.
We need to actually expand in the core business that is one. So, I will say that we would continue to invest in newer businesses but earlier we would go to even new businesses let us say we did try food delivery business by the way, we partnered with
that time but now we are like oh! we do not need to do this.
Our partners are doing a good job. Let us participate and expand that versus now we are saying that payment and credit which earlier we were not sure of whether it will generate that much amount of contribution margins, profit or not, we are expanding on that and subscription.
In last two years what has happened is what we as Paytmers, me as entrepreneur would have not expected, I mean it is a quantum leap in business model that we are seeing.
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