Operator: A very warm welcome, everyone. Thank you for joining our earnings call for the quarter ended 30 September 2026. As always, we are going to do this earnings call with management videos switched on. We welcome attendees to ask the question with their videos on or off as they prefer. To ask the question, you can raise your hand through your Zoom dashboard. To ensure a seamless flow, participants will be promoted as panelists in advance. Today, from Paytm's management, we have with us Mr. Vijay Shekhar Sharma, Founder and CEO, Mr. Madhur Deora, President and Group CFO, and Mr. Anuj Mittal, Senior Vice President, Investor Relations. In today's call, some statements may be forward-looking in nature. Actual events may differ materially from those anticipated in such forward-looking statements. This earnings call is scheduled for 45 minutes.

Operator: A replay of the call and transcript will be made available on the company's IR website subsequently. I would now like to invite our Founder and CEO, Mr. Vijay Shekhar Sharma, to share his opening remarks. Over to you, Vijay.

Vijay Shekhar Sharma: Yeah. Hi. Thank you. Good afternoon, everyone, for joining us. I think this was an interesting quarter. We have clearly come out of this question whether Paytm can make profit or not, and it is very clear the business model is now compounding from where we were, let us say, last year or year before. It is fundamentally acquire customers from payment and cross-sell financial services. Obviously, the biggest financial services that India needs is credit. So helping small merchants, which are our primary business drivers, is our primary method of revenue model. I created actually a business presentation of what we believe that is our business. So I will start this time after a long time, giving you a business presentation that this is how I think. And the intention is that how we work, and this was intended because we were going some of the international businesses.

Vijay Shekhar Sharma: I started to make and think about this is how we believe that Paytm should be looked at. Obviously, small businesses is our foray and small business is our game, so this is our purpose. We build a financial system for world small businesses, start from India, take them to rest of the world. We champion the shop on the street, the family business, the growing SME, everyone. We solve the small business problem beyond the payment.

Madhur Deora: Voice is low, I think.

Vijay Shekhar Sharma: Is it? You guys can hear me? All right. Okay. I hope you guys can hear me, because I can see some of you, so just thumbs up if you can hear me, the audience in the call. All right. I hope you can hear me. All right then. Thank you. As you know, we go beyond the payment device on the counter because we believe that this is the starting of the journey. We acquire using payment. Credit is what earns our money. Insurance and wealth deepen and AI binds. The question of what would you do AI probably hits inside this message, where every relationship starts with payment, we go and acquire small, medium, large businesses, and payment flow underwrites credit.

Vijay Shekhar Sharma: This is the critical thing that you will see in our business, that we start from small payments to the large, and depending on different states, we unlock the next state the merchant is. Then we protect the owner, family, team, and shop. This is the expansion on our insurance bucket. Then idle cash earns. This is how we help them. Obviously, this loan or mutual fund distribution comes here. This is something that we believe that we are building as our AI stack for small merchants. If you read it is something that all small businesses need to get capabilities, which our big companies have it, and they don't have somebody to operate it, so the AI operates on their behalf. We have started making some of these things, and some of the revenues are showing up.

Vijay Shekhar Sharma: We believe this is a future upside beyond financial services for our business. It will take time, but I want to be sure that this is something that we capture in our business model long-term. This is really for us that all of our functions, whether it is workflow of financial services, as you know, is AI first, including the very fact that we code, generate, and so on. So whether it is onboarding or customer. Can I ask Manish and Sachin, you guys are in the call, so are you able to hear it normally? Just thumbs up.

Sachin Salgaonkar: Yeah, it is a bit faint.

Manish Adukia: We can hear you.

Sachin Salgaonkar: Yeah, your voice is a bit faint.

Vijay Shekhar Sharma: Okay. Is it better now? No?

Sachin Salgaonkar: Not really.

Vijay Shekhar Sharma: Okay. We will disconnect this, and we will connect on our laptop. I am sure you can hear me better now on Zoom.

Sachin Salgaonkar: Much better. Thank you.

Vijay Shekhar Sharma: Yeah. Okay. I hope you can hear me better now. All right. Thank you. Well, the point is that all of our business runs, I can't say it one line item or other, and it is every line item works with AI first. The best part is that even our sales team works. So who's the correct merchant to acquire, where the high yield is or is important to retain, this is decided by a machine, not just individuals. This is important. Paytm changed the cost of serving a small business to a profit, and that is what we probably have been out there proving, that small businesses, serving them can be profitable and then as you know it. Here it is.

Vijay Shekhar Sharma: It starts from payment credit on the right and money flows into partner, pricing is visible, AI first, and then we want to take it to the rest of the world and that's it. With this, we will start inviting our friends for the questions.

Madhur Deora: Yep.

Operator: Thanks, Vijay. We will start a Q&A now. The first question is from Sachin Salgaonkar from Bank of America, followed by Manish Adukia from Goldman Sachs. Sachin, you can go ahead with your question.

Sachin Salgaonkar: Thanks, Anindita. Congrats management on another good set of numbers. I have three questions. First question, wanted to follow up on the MDR implementation on UPI. You guys did mention in the shareholder letter, 2.5 percentage points improvement on payment processing margin, let's say over a period of two to three quarters. So two sub-questions out there. Number one, how do you think this will flow through to EBITDA? Number two, from an opportunity point of view, are you guys looking to incrementally scale, let's say, at the consumer side or the merchant side? Because now perhaps the incremental LTV by CAC is getting better. In the past, I remember, Madhur, you sounded a bit more cautious on competition picking up. So any incremental comments would be helpful from competition point of view also.

Vijay Shekhar Sharma: Second part, you have to give us opportunity because I was unlocking Madhur's laptop. You said before competition picks up, what was the question?

Sachin Salgaonkar: Sorry. Let me repeat it. First, Vijay, 2.5 percentage point of payment processing margin, how do we think this will flow through to EBITDA margin? Do we see a full flow through EBITDA margin, or do we see some incremental investments because you will be now targeting more consumers or merchants and general thoughts on competition, especially in this space with monetization picking up.

Vijay Shekhar Sharma: Yeah. Sachin, Madhur is doing his job, so he is. Just unmute when you want to start. Okay. Sachin, answer is that this is a bottom-line accretive number, and it is an upside. The plan for consumer acquisition does not change in that because of this. We remain committed to acquire more number of consumers. Consumer market share is Paytm's obligation to win and I remain committed, and I am surprised that we unlocked some shocking, surprising things that was restricting our growth. They were not just internal, they were external, if you will. I am very happy to say this, that we are going to go all-in on market share, and we call it as a primary KPI for my team. It is, and it is not dependent on MDR or not. Because in our business model, MDR is not factored in absolutely completely.

Vijay Shekhar Sharma: We just tried, in fact, looking at the most conservative method, and then we found out 2.5 bps is something that we can make. Remember, there is more revenue in this business because there is a platform fee typically consumer apps are putting up in the market. There is acquiring side platform fee that exists large when large merchants, which have very large negotiating powers, they put a very low margin than companies put platform fee even in the acquiring side. I am going to say that the bits that we have quoted does not factor in any potential additional revenue if any platform side fees could have been added. This is a logical today's best-case scenario number that we know of, and in my opinion, this is bottom-line accretive because this is not basis of our consumer acquisition.

Vijay Shekhar Sharma: We will still stay same aggressive or less as the current number is, where we will acquire more number of consumers. And yes, consumer acquisition is a very positive number for us. I rather want to tell you this, that the number of features, the capabilities, the way we are acquiring customers, it is something which we are very happy about and very positive about.

Sachin Salgaonkar: Got it, Vijay. Just a quick follow-up. When I do a quick math on FY28 at a 2.5% margin, it does translate into incremental close to INR 900 crore in terms of incremental EBITDA. Is the math ballpark correct?

Madhur Deora: Yeah. So on our GMV, which is INR 28 lakh crore at a current scale, 2.5 bips would give you something slightly more than INR 700 crore. So if you are looking at FY28 number, that sounds ballpark, right. We obviously do expect to grow GMV faster than market, both on consumer and merchant side, so hopefully there is some upside there as well.

Sachin Salgaonkar: Got it. Very clear. Second question is, on what you mentioned, as you are looking to offer an AI platform to enterprise merchants, and this is Vijay's opening remark, I guess the focus is more towards smaller merchants. So should we consider the equivalent of a Tally in an AI world? And would be great to get some color. Are you thinking about this as a subscription model? Who is your target base and what kind of monetization could we expect?

Vijay Shekhar Sharma: I believe, Sachin, subscription plus transaction fee, one of the or two of the both will be applicable. Marketing is a very simple method, and we have started acquiring customers where we have put the platform fee. We are working with Meta and Google. Actually, rather Meta, where we are helping a platform fee monthly, and then we get some percentage of spend also. All these models are showing up. You can factor in based on a certain percentage of our customers who are Glassdoor merchants, this is how we look at it. We will be able to acquire or we will be able to sell some or other AI service. Yes, it is for small businesses. For large businesses, we have something more brewing up. Hopefully, we announce it after some time. But right now we are focused on creating agents for small businesses.

Sachin Salgaonkar: Got it. Logically, monetization should start picking up in 6 to 9 months from now?

Vijay Shekhar Sharma: Oh, yeah. One years, which is 3 months have already passed, so 9 months plus 3 equal to one year. Yeah.

Sachin Salgaonkar: Got it. Last question. Just wanted to understand, how should we think about the mix between DLG and non-DLG and how that could change over a period of time? Also would love to understand how the consumer loan is scaling versus the merchant loan right now that consumer loans have started to pick up.

Vijay Shekhar Sharma: Yeah. I will talk about consumer loan, merchant loan first of all. One of the things, Sachin, we learned that we do not have or rather consumer app business does not have any right to win in consumer loan distribution business if you are putting additional risk reward-based bonus, which we have in the merchant side. So we switched our business model completely towards distribution without requiring any upside of or any FLDG to be given in consumer business. I think that has shown us the result. We have been able to distribute large amount of credit to the small or large consumer demands. We, in that category, can serve any size of ticket and you can see the revenue. Surprisingly, I can only tell you it has pleasantly surprised me also.

Vijay Shekhar Sharma: The team has done phenomenally well, and we are going to go double all in and so on and so forth. There is an opportunity. To the DLG mix, I will ask Madhur to also chip in, but the simple answer is we do not look at the mix. We look at the more availability of capital, more availability of lenders, and we want to have more number of people. I always say this, that if there is a new lender coming in or if there is a lender there who wants to give us more capital because they want to take DLG, please take it. It is a revenue accretive because we get more revenue and it is a profitability accretive because they open up more number of and more account of merchants and the dollar value or the rupee value that they disperse.

Vijay Shekhar Sharma: It is overall in our business model, the one single downside is that it is a charge in the immediate month, but it is because we want to remain a credit distribution platform, never have anything which is future forward discounting of any revenue. As board guided, we have taken straight charge in the same quarter. So you will see that our revenues in that quarter will also have a cost because of the DLG reason. But it is overall as a business, it is rather a better business that there is no future forward discounting to be added in the revenue. Incidentally, it is a pure technology business and then we are happy to extend this, which gives us more revenue in long term. Madhur, your point of view.

Madhur Deora: Yeah. I think Vijay covered it. We do not say no to a lender just because they want DLG. We do not route more to a lender who has less DLG or no DLG. The idea is to find the right lender for the borrower and to do as much business as possible. Like we have mentioned consistently, even when DLG was going down or going up, we have consistently mentioned that we are largely indifferent to this. If a lender has a preference, we let them have the DLG. It does backend some of our profitability, so that is worth pointing out. When there is changes in DLG mix, it is worth pointing out to analysts just so that they get the models right, that some additional amount of our profitability is getting backended.

Madhur Deora: And the final point I will just make is that we have been doing this for about 2 and a half years, so we do have some method to this and we do know how to manage the DLGs quite well. And it has never really given us any negative surprises or results, so we are quite comfortable with running a large book within which a large percentage might be DLG-based.

Sachin Salgaonkar: Thanks. And one last quick one. We are already at October end. There is a market share cap of NPCI at 40%. Anything you are hearing from NPCI guys, key officials, if this would be implemented in December?

Vijay Shekhar Sharma: We are the receivers.

Sachin Salgaonkar: Yeah. Thanks a lot.

Vijay Shekhar Sharma: We are trying to optimize for this situation.

Madhur Deora: On speaker on record for time.

Vijay Shekhar Sharma: Huh.

Madhur Deora: Mute unmute depending on.

Vijay Shekhar Sharma: Sure.

Madhur Deora: Sure.

Sachin Salgaonkar: Great. Thanks a lot, guys.

Vijay Shekhar Sharma: Thank you.

Operator: Thanks, Sachin. We will take the next question.

Vijay Shekhar Sharma: Mute karo.

Madhur Deora: Yeah, that is right.

Vijay Shekhar Sharma: Go ahead.

Operator: We will take the next question from Manish, followed by Vijit Jain from Reuters. Manish, you can go.

Manish Adukia: Thank you, Anindita. Hi, Vijay, Madhur. Good to chat with you. First, a couple of follow-ups from the earlier discussion you were having to Sachin's questions. When you mentioned you want to go all in on market share. One, is that comment specific to consumer market share or is that broad across

Vijay Shekhar Sharma: Market share and merchant market share, Manish. The idea is that whenever we are talking market share and market share cap, we are talking about consumer. Whenever I am quoting specifically, it is for consumer. In merchant, we are all in, and it will be awkward for us to lose some bit.

Manish Adukia: Right. When you say you want to go all in on market share, what will drive that?

Vijay Shekhar Sharma: We need to acquire customers in different ways, in segments where there is some or other thing, whether it is marketing spend, whether it is collaborative partnership, whether it is a product feature, whether there is something new insight, viral. My thing is that I don't want to do it based on only marketing spend, if you will, or cashback burn. I want to do it on product and features. We partnered with Perplexity at one point of time, if you remember. I was thinking that there will be large usage, but yeah, there is a lot on the table. Just don't think about it. We don't look at our consumer market share as a people have to only come for the UPI payments.

Manish Adukia: Very clear. My second question. Before the MDR implementation was pushed from 15 October to post-Diwali, can you give us a peek into the kind of conversations you were having with your merchants? I'm just trying to understand the operational implementation of UPI MDR. Whenever it happens, let's say post-Diwali, when you go to, let's say, a merchant and the cap is at 40 basis points, by default, does everybody get switched on at 40 basis points? Or is there a bilateral negotiation you need to have with each merchant to say that, "Hey, you will pay 40, you will pay 30." I'm just trying to think that from an operational implementation perspective, how heavy is it or can it happen at the flip of a switch on day one?

Vijay Shekhar Sharma: Flip of a switch on day one.

Manish Adukia: Okay. You don't necessarily need to go and speak to your merchant and tell them that, "Hey, it's happening." You can just do it and then negotiation can happen later.

Vijay Shekhar Sharma: There is no negotiation. We work with small businesses. If you are, let's say, a large merchant, you would like to negotiate that, "Oh my God, I would like to pay lesser price." Then somebody else will enter with that price. Even then, you will negotiate only when somebody else enters. So smaller merchant is easier and better superior business always, and it is complex to do it.

Manish Adukia: Right. So basis that statement, can I say that majority of then your GMV transactions, et cetera, should be closer to that 40 bps cap rather than a much lower number than that?

Manish Adukia: Understand. Got it. Last question on just the growth momentum in the business. This quarter, of course, you had very strong growth across businesses, financial services, marketing, payments, and your commentary suggests that financial services near term looks good, marketing has recovered, payments, festivity, et cetera. So I am just trying to think that across the various businesses that you have, are there any businesses where in the near term there is any growth headwind at all? In the past, Madhur, I know this is maybe more than a year back, you had guided for revenue growth in the 20s to sustain the medium term.

Manish Adukia: Given what you have seen in the business in the last couple of quarters, I am talking X of MDR, has that expectation of revenue growth momentum reset upwards? If you can maybe talk about that.

Madhur Deora: Yes, we have seen now two consistent quarters of 28% growth. While we stick by the reported numbers, if you exclude the idea from previous year same quarters, this number is in the 30s. So we are seeing, thanks for pointing out, strong tailwind and we had said last quarter that across the board. So consumer and merchant, payments and financial services, if you think about it that way. We are seeing very healthy tailwinds in lending business. Personal loan as we come out of the credit cycle, which was our expectation four or five quarters ago when we were in the middle of the credit cycle. Like Vijay pointed out with the personal loan distribution business. Merchant loan business continues to do very well, including some TAM expansion opportunities that we have talked about.

Madhur Deora: Both on the slightly smaller ticket size as well as the larger ticket size, always sort of around the core business that we have been doing for the last seven years. On payments, we see GMV growth, market share growth, as well as better pricing. All of this excluding MDR, of course. So far, really well. I think a lot of sharper execution also possible because of AI, because we do have a large cost structure on sales, on collection, on service, and so on. All of these things just become better ROI due to AI. Some of that shows up in better costs and faster revenue. Some of this does show up in faster revenue. If we collect better, it shows up in higher revenue in our business model as you understand it. That is just to give one example.

Madhur Deora: I think there are some very smaller, much smaller parts of the businesses where there are a few headwinds. For example, our equity trading business is doing quite well. Equity broking rather, is doing quite well on NCF. But overall market volumes haven't been that great. So that hasn't quite scaled up as much as we would have liked to. Travel has been a little bit sort of on and off. So there are headwinds in the travel industry as well, and there's been a little bit of headwind overall in wealth, including the bond business. So these are much, much smaller businesses of ours. But because you asked, I just want to be complete. But in 85% to 90% of our revenue, we are seeing significant tailwinds rather than any meaningful headwinds.

Manish Adukia: Thank you for answering my questions. All the best.

Madhur Deora: Yes.

Operator: Thanks, Manish.

Vijay Shekhar Sharma: Ikshail.

Madhur Deora: Yeah. I am struggling with that.

Vijay Shekhar Sharma: Go ahead. Madhur Deora is joining from different room so that we do not have any echo in the same room. Little bit of logistical error here in the room. Okay.

Operator: We will take the next question from Vijit Jain, followed by Chanul Shatria from Emkay Global Financial Services.

Vijit Jain: Yeah. Hi. Thanks. Hi, Vijay Shekhar Sharma. Congratulations. Good set of numbers, I think. My first question, just a follow-up on the MDR thing to what Manish Adukia asked earlier. In general, do you think the industry readiness is there for MDR to be switched on immediately post Diwali? I know there were discussions around some outstanding points of clarification that were needed from NPCI, and there are various players in the payments ecosystem who are all supposed to be ready to do the MDR you guys collect, but needs to flow through properly into the system. So in terms of that operational readiness, are we there yet for it to get switched on post Diwali, any specific date? That is part one of my question, and then I will follow up with the rest.

Vijay Shekhar Sharma: We are ready. The industry is ready.

Vijit Jain: The industry as well. Sorry. I know you guys are.

Vijay Shekhar Sharma: Industry is bigger. Industry is bigger role. We are one of the participants. We are ready. We can do it. We do it. We already make MDR-based revenue, RuPay credit card on UPI credit line, which is Paytm Postpaid, issuing, acquiring, everything is working. It works.

Vijit Jain: Okay, got it. Perfect. My second question.

Vijay Shekhar Sharma: And by the way, for industry also, I will say it works. It is just one of the payment instrument called a bank account. So I am sure, Vijay, if you go deeper, MDR on UPI is slang word for MDR for bank payment on QRs, which other payment methods already have MDR, as you know, on credit card or credit line and so on. So the system for everybody is working, actually.

Vijit Jain: Got it. So it just needs the decision on the date in that sense, then.

Madhur Deora: Yes, that is right.

Vijit Jain: Got it. Perfect. My second question is on the devices business. So good to see another good quarter, 700,000 odd devices rolled out in the quarter. Now, I am just wondering, now that MDR is there, in terms of where you roll out devices, what kind of merchants you target, is there any kind of a change in who you would want to target? Would you look at merchants who do more of INR 2,000 plus transactions specifically? A, and B, I know that there is this provision for improving penetration of devices in smaller tier towns. That is carved out in the UPI program from NPCI. And I know you guys have that capability and infrastructure already set in place. So is that where you would focus more of your device rollout plans on? So I just wanted to get a broader flavor on how you are looking at that part.

Vijit Jain: And related question to it is your CapEx, your H1 CapEx on device rollout. Is that what I should use as a kind of a benchmark on what CapEx would look like now going forward?

Madhur Deora: Yeah. So, Vijay, as we have said, the MDR on UPI is an upside to our business model.

Vijit Jain: Right.

Madhur Deora: It is not fundamental to our business model.

Vijit Jain: Right.

Madhur Deora: So I just refer back to that and explain what I mean, which is in the small merchant space, the primary business model remains the same, which is we acquire through payments and we upsell financial services. At our current penetration rates and so on, the financial services revenue is significantly larger than either the fund or the MDR opportunity, et cetera. Right?

Vijit Jain: Right.

Madhur Deora: Short answer is, fundamentally

Vijit Jain: No change.

Madhur Deora: The whole business does not change. In the very small merchant business, we will actively not get distracted by the fact that there is some perhaps additional MDR opportunity because the bigger monetization and the payback period comes from financial services. End of day, the AI models that we use for what we call ARMS, acquisition retention monetization service, they throw up the insights as to, hey, put some more sales effort in this PIN code, put some more service effort in that PIN code.

Vijit Jain: Yeah.

Madhur Deora: They will factor in the small merchant fund MDR opportunity, just like today they factor in the RuPay on UPI, RuPay credit card on UPI opportunity.

Vijit Jain: Got it.

Madhur Deora: So there will be that as an input, but I don't think fundamentally the model will throw up surprising new facts. On CapEx, yes, we have said it was about INR 400 crores on inward devices count basis, and we expect that to be the same. That number is a little bit higher than before, but we are focusing a huge amount on engagement and retention of high quality and high potential merchants because the payback periods are working so well that we just want to make sure that we have enough funnel going off of high quality, highly engaged merchants going into financial services.

Vijit Jain: Perfect. Thank you so much. My last question on the net payment margins. This is a quarter where there is no UPI, so it's just business ex-UPI net payment margins, and it's 9 basis points. Just general sense there, because top-down, if I look at the industry data, credit card spends has been kind of soft. Both QOQ, YOY, and nothing particularly interesting has happened, at least in the industry. I know you guys have other drivers, RuPay credit card on UPI, Paytm Postpaid, but device subscription fees as well. So in general, the 8.5 to 9 bps move that happened in this quarter, what would you attribute that to?

Madhur Deora: I think part of it is a little bit higher. We have a certain threshold, certain type of merchant, what type of pricing do we want to make?

Vijit Jain: Sure.

Madhur Deora: I think there is just a little bit additional discipline around that number.

Vijit Jain: Okay

Madhur Deora: Which we have imposed. That is one. The second is we have other factors as well where we are gaining good share, and we have had momentum for a while, things like EMI, DCC, et cetera, and the enterprise side.

Vijit Jain: I see.

Madhur Deora: It is a combination of a few different things.

Vijit Jain: Got it. Perfect. Thank you so much, and best of luck for the next quarter.

Madhur Deora: Thank you.

Vijit Jain: Thank you.

Madhur Deora: It was it.

Operator: Thanks, Sujit. We will take the next question from Pranav, followed by Suraj Das from Sundaram Mutual Fund. Pranav, you may go ahead.

Pranav Kshatriya: Yeah. Thank you, Vijay and Madhur Deora, for this opportunity. My first question is regarding Paytm Postpaid. Your commentary suggests that Paytm Postpaid is scaling well. I do think that once there is MDR on UPI, possibly there should be enough reason for people to actually start accepting Paytm Postpaid even more. So how should we see this scaling up? There was a scale of roughly INR 9,000 crore in a quarter kind of a disbursement. Do you think we can reach there in, let's say, a year or 2? In terms of the customer also, it was a fairly broad base, almost 10 million kind of a customer base which was there for this product. So are we closer to those numbers, getting closer to those numbers? Any change in the behavior of those customers, what are you seeing? Because this was also a funnel for the personal loan.

Pranav Kshatriya: How this is panning out, some color on that would be useful.

Vijay Shekhar Sharma: Number 1, I do believe that it is even more apt, like you have suggested, for the acquiring side and issuing side, which is the consumer side, than when we had launched it. Because the customers have learnt about it, and it is more of multiple player game now. I would say that when the market has learnt the product. In first avatar, we were teaching a product. This avatar, we already know the customer is using. We do believe that it is having potential upside. 1 or 2 year, I do not know whether it will be dash amount of quarters or dash dash amount of quarters, but it has a target expectation of those numbers. There is no secret about it. Why would we not want to reach those numbers?

Vijay Shekhar Sharma: And at the same point of time, Madhur has always quoted, I have quoted, we have quoted that it is accelerating better than before. So it took time last time. It will take time this time. We want to be very sure of quality of customers, quality of credit book, and so on. And incidentally, it is an EBITDA positive business by itself. So it is a contribution margin positive business for us. And we remain committed of a large customer base and large merchant base. And when the customers and merchants end up using it, large disbursements as well.

Madhur Deora: Yeah. I would just point out that there are certain elements of this network which have grown even further ahead from the first time around, which is the number of merchants who accepted in month 6, month 9, month 12, as you would imagine. And that is kind of going back to your point a little bit that, hey, if they were accepting RuPay on UPI now, then they shouldn't have a problem paying with this and with MDR that should also. The spend per active customer started at a very solid number. So it didn't sort of start low and started going up. The customers who were using it already were loving it. Also are learnings from the collection work that we had done previously. That is directly being used now. So we didn't have to get better and better at collections.

Madhur Deora: We actually started with a very high base of learning and technology, and so on. So all of those things are helping us, as you would imagine.

Pranav Kshatriya: Excellent. My next question is actually a follow-up to Vijay's question. So if I assume like INR 60 kind of a rent per device, then payment processing margin is like 5 basis points, whereas you state that it is above 4 basis points. So there seems to be a fairly strong growth. I'm asking more about the sustainability of it. Some color on what is driving it, because it can be either bill payment gateway, credit card, RuPay credit card penetration. So some color on that.

Vijay Shekhar Sharma: Pranav, I will take it to another dimension where I read a few reports and they talked about that there is a GMV which is nearly only quarter-on-quarter 1% up.

Pranav Kshatriya: Right.

Vijay Shekhar Sharma: We have gone strictly high-quality merchant. Strictly high quality stands for you give up on large online merchants who are negotiating dollar for 90 cents. They are discounting something which is lesser than the source price. Many companies go on to IPO or raise more money in private markets. They do it because it is good for them. But for us, it is okay not to. This is specifically in online category, if you notice. Especially if you know this was the festive season where they were negotiating especially hard because they wanted to put money somewhere else to use. So we were like, "We do not participate in it," number one. Number two, there has been a bad customer in commercial sense for us that had to conclude the transaction. It was large insurance company. We probably concluded the contract so that GMV did not show up.

Vijay Shekhar Sharma: That is just bottom line contribution positive business.

Vijay Shekhar Sharma: These elements, basically, Pranav, we are very clear that it is a free cash flow generating business now. It is no more about you snap a customer or over two, because ultimately every customer is our customer. It is rather choosing the good quality of revenue and bottom line driving revenue. There we have become aggressive in acquiring more customers and more type of payment options for payments and cross-sells instead of trying to just say that, "Okay, this is really cheap and I am ready to discount it below price that I am sourcing." So what you saw is very nuanced, and I acknowledge that it is very well looked at, looked through, and the reason is that we are looking at good quality GMV over any GMV that is available in the market. Quality stands for bottom line contribution.

Pranav Kshatriya: Excellent. My next question is regarding the investment. You talked about Paytm Cloud Technologies Limited. There is a INR 500 crore enabling resolution to invest over next 12 months. Can you throw some light on where that investment will go into? Does that have anything to do with the CapEx increase, what you talked about?

Madhur Deora: I think I acknowledge that the name Paytm Cloud Technologies may kind of give the wrong idea. There is a small need in one of our 100% owned subsidiaries in the near term, potential need. When we went to the board, we took an enabling resolution that we can put up to INR 500 crores in the subsidiary. The same INR 500 crores, up to that number, can be put in one of our international subsidiaries as well.

Pranav Kshatriya: Right.

Madhur Deora: This is allowed over 12 months in multiple tranches, right? It is not one specific need. It could be a combination of three or four things which might add up to a few hundred crores, up to INR 500 crores. To the extent that it is being infused in the Singapore subsidiary of PCTL, Paytm Cloud Technologies Limited, that is likely to be used for some seed investments in international markets. But we don't expect, at the moment that, and we don't have any concrete plans for that to be actually INR 500 crores. It could be up to that number, could be lower. But it's an enabling resolution that we have taken. Of course, as and when we infuse funds and/or make any investments, including seed investments, most of those will be disclosable right away anyway.

Pranav Kshatriya: Sure. Thank you so much for answering all the questions. Wish you all the very best. Thank you.

Madhur Deora: Thank you, Pranav.

Pranav Kshatriya: Thank you.

Operator: I would request the speakers to please restrict their questions to two. We will take the next question from Suraj, followed by Pranav Gundlapalle from Bernstein. Thank you.

Suraj Das: Yeah. Hi. Actually, I have four questions, not two. But anyway, I think I will ask one.

Suraj Das: First of all, I think great set of numbers. Congratulations on that. My first question is on this P2M GMV. I think it seems to be flat on a QOQ basis, which is happening for the first time since COVID. Maybe, what is your thought on it? Why it is flat QOQ this quarter? How to think about this? Yeah, that is

Madhur Deora: Can I just quickly answer this? Q2 versus Q1 is usually a little bit subdued, but it depends on the timing of the festive season. If you get some of the festive pre-sales coming in Q2, then Q2 versus Q1 can be higher. This time, obviously, we have a late Diwali, so the festive is almost entirely in Q3. That is one kind of general factor. Specifically, what I think Vijay sort of mentioned, and I connect back to this point, we have a certain threshold for how much margin we want to make from a certain type of customer. For example, if it is a large enterprise customer, we will have a certain threshold of how much we want to make. We have been very meticulous about being disciplined around this number.

Madhur Deora: There have been two or three customers that have been affected because of that, and we are perfectly happy to let them go to competition. Within that, there was one quite large customer where we had a long-term contract. That has expired. We are discussing whether we would do it on a different pricing. If we are not, we are happy to let that customer go.

Suraj Das: Okay. No, because this seasonality would exist also in earlier years, last four or five years

Madhur Deora: Yes, it does, but depending on the festive.

Vijay Shekhar Sharma: Plus I think the reason that Madhur is giving, if you look at this was a materially large negative contribution margin customer. Our contract finished, and we will do it only if negative contribution.

Madhur Deora: Suraj, the evidence of that is in the point that Vijay was mentioning, that our 8.5 has gone to 9, which is the net payment margin number. So that was a drag customer on profitability, even though it was meaningful on GMV. That going away did have an effect. If that customer was there, you would have seen growth.

Suraj Das: So when you say it is a meaningful of GMV, share would be probably in double digits or maybe high single digits?

Madhur Deora: Not double digit percentage, but

Suraj Das: Understood

Madhur Deora: significant, yeah.

Suraj Das: Sure. The second question is more on this investment. Can you throw some light that what does Paytm Cloud do? Is this also the entity through which you do this refurbishment of devices and CapEx? Because I see its PAT has jumped almost 7x on a YOY basis, while the number is very minimal, INR 84 crore. But why this jump? Does it have to do anything with the maybe supplying more devices to your Singapore, Indonesia, or any other country where you're probably planning to do this merchant business?

Madhur Deora: The operations of PCTL are there but not very significant. PCTL is an entity through which we make investments in some foreign ventures.

Madhur Deora: For example, we had announced the setting up of a business in UAE. We have announced the subsidiary in Luxembourg. A lot of that is done through PCTL. I would think of it as largely, it is an operating company, but largely use of proceeds in that company would largely be funding other overseas venture, including funding needs of existing overseas ventures. That is the plan, but we do not have a firm number on it, which is why we have taken an enabling up to 500, and we have taken it for up to 12 months that we do not have to keep going back to the board for the same type of approval. Of course, each investment, if any, will be approved by the respective boards and will be disclosed if it is material.

Suraj Das: Sure. Madhur, I think if I am not wrong, you also used to have one One 97 Communications Singapore entity, which used to be your umbrella entity for international business earlier. Now I think you are doing this international business through this PCTL. What is the difference? Because I think you got that PayPay cash in that entity, right?

Madhur Deora: Yeah.

Suraj Das: So-

Madhur Deora: Oh, we can take it to some of the nuances of Suraj, if you do not mind.

Suraj Das: Sure.

Madhur Deora: Basically One 97 Singapore has been doing international business or some of our old business, which is the marketing cloud business, where we service telecom companies and enterprise around the world. Basically the One 97 business as it was called. Whereas PCTL is doing largely the merchant payment and merchant lending partnerships. What we have described in previous press releases as partner-operated and Paytm-operated merchant payments and upsell to lending type of businesses.

Suraj Das: Sure. Last two questions very quickly. On this AI platform that you have started offering to merchants, once you start monetizing this whole business, in which line item of the P&L the monetization part will reflect?

Madhur Deora: Cloud and marketing cloud. Marketing services.

Suraj Das: Marketing services.

Madhur Deora: Amongst the three lines, it will come in marketing services.

Suraj Das: Okay.

Madhur Deora: Of course, the nature of that will evolve over time, but vast majority, if not all of this, will be in marketing services.

Suraj Das: Perfect. The last one is on FLDG. While I think we have had enough discussion on FLDG, I understand it is P&L neutral, but just from business point of view, why these lenders do flip-flop? For example, I think you were saying from next quarter onwards, one of your large lender would be doing FLDG again. I think 3, 4 quarters back, they started doing FLDG, then they stopped, then they again coming back. Just from, let us say, business decision point of view, why lenders choose FLDG or not? I understand it is probably best for you, but because it is also a recurring thing. FLDG works like a current account or maybe, I don't know, something like margin trading funding from an operational point of view. When somebody does flip-flop every quarter, it looks like there is some decision factor.

Suraj Das: Can you throw some light that what is that decision factor?

Madhur Deora: Well, this lender used to do FLDG back in FY25. At the beginning of FY26, we had a discussion that they said, "Hey, it is not really that important for us to take FLDG's." So we requested them not to. They said, "Hey, for 2, 3, 4 quarters we won't." They were nice enough to not take FLDG for 6 quarters while scaling up business with us and being one of our longest standing and deepest relationships. We are very appreciative of the fact for 6 quarters. What was meant to be maybe a temporary pause ended up being 6 quarters. It is not a huge surprise to us that at some point they would want FLDG's again. Like I said, we are largely indifferent, so we do not challenge them on all the details of it.

Madhur Deora: Our sense is it may have also to do with certain RBI guidelines with respect to they can offset that against credit losses and so on. Then it is more useful to them in the current construct than it may have been in previous constructs. But like Vijay Shekhar Sharma said, this is not a top thing that we negotiate with lenders. In fact, I tell the team, "This is not a top five factor for me." Do more business, do it with the right partners, do it obviously at the right credit quality. Make sure we are investing in collection. Make sure we are building funnel for more and more lending down the road. Don't be focused on six months, focus on two years, three years, five years. Build great technology.

Madhur Deora: Those are things that we focus on when we are thinking about which partner will scale up over time. FLDG is way lower on our list.

Suraj Das: Sure.

Madhur Deora: Of course, because we have conservative accounting around this.

Madhur Deora: It all kind of comes up front. So in these conversations, it's something that we have to highlight, and this time we have taken the sort of opportunity to flag it, not at the end of the quarter, but at the beginning of the quarter. Of course, the quarter that we're discussing right now, there's no impact of that. But we have taken the opportunity to just flag it ahead of time so there are no surprises at the end of the quarter. So in these conversations, it's quite relevant. In lender conversations, we don't pay as much priority to it.

Suraj Das: Sure. That is good to hear. Thank you so much for answering all my questions.

Madhur Deora: Thank you, Suraj.

Operator: We will take the next question from Pranav, followed by Jeff Sarote from Axis Capital. We will also, to accommodate more participants, be extending this call for another 30 minutes. I would request those people to please limit their questions to this. Thank you. Pranav, you may go ahead.

Pranav Gundlapalle: Hey, thanks, Vijay and Madhur Deora for taking the question. Two questions. One is on the sales team additions. You have had a punchy addition to the sales strength. Your device additions are largely flattish on a year-on-year basis. Is this sales additions in a different area, or is it largely towards the same Soundbox additions? That is question one. The second question is on the lending business. Do you have a sweet spot in terms of GMV of the merchants where you would like to lend, either based on EMI to GMV or EDI to GMV or any other such ratios? If you have such a range, how many of the device merchants do actually fall in that range? Because you have 16 million, but how many would fall into a lendable category? Those would be my two questions.

Vijay Shekhar Sharma: Awesome. The first question of

Pranav Gundlapalle: Sales

Vijay Shekhar Sharma: -are in the same category. Pranav, they take time to get mature. We sort of train them, and we first give them retention jobs, revisits in the markets, if you will, and then we give them deployment jobs. So it is in sequencing. So, we have been able to recruit because we have been pending to recruit for a long enough time, and quick commerce has been taking up large number of people of these kinds. So that is why. You will see, hopefully, that we are adding more number of Soundbox merchants. And it is also that we are rejuvenating the relationship like you asked for. One thing that we are more bothered than the GMV is about aging on our platform, because a lot of time, the shopkeeper may be taking cash, may be taking another way of payments.

Vijay Shekhar Sharma: But the fact that he is retained on our platform gives him more probability to get a loan from our lender partners than the dollar value, which is large. Even if you look at the average ticket size of INR 2 lakh, we are talking about even INR 1,000 a day means INR 500, which is our threshold that the person should be able to pay every day. So 500 into 365, 500 plus 365. That is the kind of numbers the ticket sizes are. So the threshold is not based on GMV, but rather based on aging and GMV. Some element will definitely be there. If you are earning, let us say, INR 100 today, we are not going to give you credit there. By the way, we could give you Paytm Postpaid there, you would remember that. So not the term loan merchant cash advance. How many merchants are creditworthy?

Vijay Shekhar Sharma: That is a very interesting one because, if you notice, we have not dramatically added the count of merchants because I have told my team it is a business model of, like I showed you in the beginning, payment and credit. And that means that we need more merchant who are creditworthy than the merchants that are just signed up. Again, the quality of merchant. Merchant quality equal to bottom line, bottom line equal to financial services is a bigger bottom line than the MDR or subscription, and then that means retained merchant is better valued and so on. While we may have acquired a lot, we just remove the merchant whom we do not see active or transacting. While you are seeing the net active, the gross actives are bigger. And that is why this number looks a little bit less or not.

Vijay Shekhar Sharma: But at the same point in time, all said and done, the net active that you are seeing, net active monthly, which is what we report every quarter, will grow up. Definitely will grow up. I personally see, on a base of 15 million, we believe that something in the plus of 10 million are definitely a good quality merchant.

Pranav Gundlapalle: Okay. So at least two-thirds you think would be customers you would be happy to, merchants you would be happy to lend to.

Vijay Shekhar Sharma: It is all based on the relationship and aging. I do believe that I want even more than two-thirds to go on than to acquire new customers. That was the pitch to my sales team.

Pranav Gundlapalle: Okay. So would it be fair to say at least two-thirds have INR 1,000 per day or more, in terms of GMV?

Vijay Shekhar Sharma: I don't think that is a number that I will often tell, but I do track literally the same number that you're quoting, lendable merchant, if you will, and two-third.

Pranav Gundlapalle: Okay. Two-thirds. That's good to hear. Last one minor question, if I can squeeze in. On your indirect sales cost growth, there's a big spike in the software and cloud expenses.

Vijay Shekhar Sharma: Yes.

Pranav Gundlapalle: Is that a one-off or is this a new normal for your expense rate?

Madhur Deora: Well, we have. Sorry, go ahead, Vishal.

Madhur Deora: Okay. We have commented on it. As a part of some of the migration of merchant payments business that we did to our subsidiary, there is a little bit of platform redo that we wanted to do in terms of consolidating certain platforms, which does have some cost while you are doing that project. So that was largely in this quarter. There is a little bit of that in the next quarter. So there is that sort of one-time exercise. I should also point out that we are spending more on AI, right? We are seeing huge amount of gains and huge amount of ROI, largely in indirect expense and sales growth because of the spends that we are doing on AI. So given the nature of our platform, for example, if I am retaining merchants better

Madhur Deora: it will show up in revenue, right? If I am doing better collections, it will show up in revenue. And there is also a tendency that, hey, if you have reduced the cost of doing something, your one instinct is to try to do a little bit more of that activity, right? So you may not necessarily see that as a cost reduction. You may see that in revenue growth. So the combination of revenue growth, which is, like I mentioned, like for like now in the 30s

Madhur Deora: and indirect expense overall being very much under control despite the sales and service investments we are making, despite marketing costs and despite AI costs, we are seeing the goodness of that, right? So we monitor it very closely, but we are actually okay to spend more on AI costs as well.

Pranav Gundlapalle: Understood.

Madhur Deora: So there is some element of that. Once that, I think maybe by end of next quarter, we will be able to start talking about a slightly more normalized number, both for increase in AI costs as well as putting this one-time project behind us.

Vijay Shekhar Sharma: I want to specifically tell you, Pranav, a very interesting fact. I personally look at the cost and the output of AI at a different level than, let's say, Madhur himself as a cost control will look at it. I look at it yield of what shipped. Not just what got created, what shipped, what earned revenue, and so on. I am very happy to tell you that what we have made, obviously slowly, revenue doesn't show up immediately. Products are loved and liked. You are not spending so much, you are growing. All those advantages are very visible. In this quarter, when I looked at the cost of cloud, majority was because online business was in an entity. Offline business was in an entity. We brought into a single entity. The platforms were to merge, so there were duplications.

Vijay Shekhar Sharma: Like Madhur said, little bit of next quarter also, it sorts out. So actually majority cost was this migration.

Pranav Gundlapalle: Understood.

Vijay Shekhar Sharma: Majority incremental was migration.

Pranav Gundlapalle: Understood. So essentially, there is no need for indirect costs to grow at an accelerated pace for the existing business. Obviously if you have ways of earning revenue through AI spends or cloud spends, then that's-

Vijay Shekhar Sharma: Totally

Pranav Gundlapalle: hopefully be great.

Vijay Shekhar Sharma: Very well put. It was very clearly because majority of cost of incremental costs on the cloud was attributable very completely towards this migration of online, offline. That brings us omni-channel payments, just in case.

Pranav Gundlapalle: Thank you. All the best. Thank you.

Vijay Shekhar Sharma: Thank you.

Operator: We will take the next question from Jayant, followed by Prakhar Sharma from Jefferies.

Jayant Kharote: Hey, congrats, Vijay and congrats, Madhur, for another great quarter. I will pick up on MDR on UPI. This 2.5 basis points, if you could give a broad split between consumer and merchant. And where it is coming from is clearly merchant, you guys are going to enjoy the fruits. On the consumer side, there is a worry of this pool getting competed out. Especially for the top, let us say, 2% to 5% spenders who will do more than this 2,000 spends. Are we going to throw our hat in the ring and willing to sacrifice a little bit of that margin? Or are, given what you have done this quarter, I think rightfully focusing more on the profitable GMV? I mean

Madhur Deora: I would say, first of all, this is not implemented yet. Number one, so one can get into many different types of scenarios. I think what we have put forward is a number that we are confident of delivering. Like Vijay said in the response to an earlier question, there are certain scenarios under which hopefully we will do better than this. That obviously when we are putting out a number, we do not put the high end of our number. We sort of haircut it for various scenarios. But specific questions about whether we should be assuming that there is more chances of being competed away on consumer side versus merchant side, what intensity would there be? I think we will only find out in Q2, Q3 after implementation.

Vijay Shekhar Sharma: An important thing, Jayant, is that let us be very open and transparent about it, that consumer business is ours to win. There have been, I would say, non-internal, not just led by us, issues that has made us have so less UPI market share of consumer. Our product and capabilities are continuously moving up. Internally, we are far more, I would say, expecting, hopeful, sure of our market share than we were last year and last to last year. So it is not something that the result is out and we are there. We would rather want to tell you that we will change the result with our hard work and perseverance and pushing as much possible, even on the consumer side. You said it already that merchant side we will get the win, but consumer side is for sure ours to win.

Jayant Kharote: You want to highlight, Vijay, what is this external thing? Because the numbers are very strong that you are seeing. Or maybe I can take it offline.

Vijay Shekhar Sharma: See, Jayant.

Madhur Deora: We will take it offline and.

Vijay Shekhar Sharma: Yeah. My intention is to say that there are a lot of factors because we are part of a network that we have to align and work and get all the network pieces all together. The more you dig, the more you find optimizations possible. So I just want to say that erstwhile we were not so much focused on the product and technology as much we are, and the results are showing up.

Jayant Kharote: Okay. Second is in the MDR GMV that you have assessed, which is let's call it the eligible GMV. Is that growing slower or faster than the overall GMV? What I am trying to understand is once we set a new take rate in the new world, does that take rate expand from there or stabilizes or maybe comes off?

Madhur Deora: I think the mix is not changing dramatically because obviously where Paytm has unique strengths is in the small merchant business, which is growing very fast. For different set of reasons of enterprise business and the online business is also growing quite fast. Online, as you know, we were under embargo until August of last year. Starting beginning of this year, we are seeing good hunting goodness. In enterprise we are improving because of EMI offerings, DCC offerings, greater distribution, et cetera. So we are gaining share across the board. I do not think there is a huge secular trend that I can point to that we are at X percent Eligible GMV, and I expect that to go up by 10 points or go down by 10 points over the next couple of years. I also do not think that will be a major factor.

Madhur Deora: The major factor would be just executing as well as we can for our merchants.

Jayant Kharote: What have happened last 12 months?

Madhur Deora: To be honest, I have literally not even bothered to check that data.

Jayant Kharote: Okay. I know it last.

Madhur Deora: I know what the data is as of this quarter, and I know that as we roll forward that data, the mix effect is not going to be a major factor.

Jayant Kharote: Understood. One last I could squeeze in on the DLG accounting. While, Madhur, you have explained this multiple times, just because we want our models to be clean. Contribution margin shrinks, then recovers as we reach the tail end of the portfolio and the lumpy payments come out. All this while, EBITDA margin keeps expanding at a normal pace. Is that a correct understanding?

Madhur Deora: No. When contribution margin goes down, there is a drag on EBITDA as well, of course, in that quarter. When you go from, let's say for a second I am giving 2% to a partner. If I am going from 0% to 2%, that 2% shows up in direct expenses in that quarter. And there is a little bit of additional revenue in that quarter, but most of the additional revenue comes over the duration of that loan. So that impact on contribution margin does slow down on EBITDA as well. What we have said is there is huge amount of tailwinds in the businesses overall, including in the merchant lending business, that we do not think that we are looking at EBITDA going down next quarter. We do think EBITDA will continue to go up this quarter despite this drag.

Jayant Kharote: EBITDA absolute going down or EBITDA margin going down?

Madhur Deora: I am saying the isolated effect of giving DLG is a drag on EBITDA. But on an overall basis, given the huge momentum we have as a company, quarter on quarter, we will still expand absolute EBITDA.

Vijay Shekhar Sharma: Jayant, cost but margin revenue margin.

Jayant Kharote: Great. Thanks a lot. And Madhur Deora, just because I will use this last. EBIT margin, depreciation going up, CapEx going up. How should we think about that?

Madhur Deora: I think depreciation year-on-year hasn't gone up very much, but like I said, we have done more CapEx in the H1 than we did previously. So with a drag in FY28 and so on, there will be more depreciation. But it is all being done for a specific purpose, which is higher engagement, higher retention, higher financial services revenue. And we are only doing this because we are seeing great payback of putting in that investment, whether it is in service cost, whether it is in CapEx, on the eventual financial services and other monetization funnels.

Jayant Kharote: Perfect. Congrats once again for a great set of numbers.

Madhur Deora: Thank you very much.

Jayant Kharote: Thank you.

Operator: Thanks, Jayant. We will take the next question from Prakhar, followed by Varad Rajadia from Morgan Stanley. Prakhar, you may go ahead.

Prakhar Sharma: Sure. Thank you, Vijay. Thank you, Madhur, and great set of numbers. Good to see high growth companies. Just quick questions. One thing which really impressed, surprised me, your monthly transacting users. On a quarterly basis, you used to add 1 to 2 million customers a quarter. This quarter, it is 5 million. Fabulous numbers to see. But when I tie it in the fact that you are far more focused on quality customers, of course, this is total users. How does this tie up? Is this a run rate that can sustain for at least for some quarters and then it normalizes? That is the first question.

Vijay Shekhar Sharma: I wish this sustains for sure for a few more quarters and more quarters, number one. Like I answered in previous question and in the beginning of the call itself, it is one of the most critical KPI that I personally carry. The number of new users and users and so on and so forth. By the way, we hit internally even 100 million sometimes, even the users on our platform. I am going to say that our target is to take one-third market share in this business. There is nothing less than that we will settle for.

Prakhar Sharma: If I can just ask you, if there are two things that are working very well for Paytm, what are those? Because this run rate going up at such high level.

Vijay Shekhar Sharma: Good product and technology. The industry has not seen good product and technology. Straightforward. It is good product and technology, cleaner, simpler, good product and technology. Like I said a few minutes back, the more we are digging in, the more we are finding out, "Oh my God, why was this blocked? Oh my God, why was this blocked?" Then we go back and solve for it. Prakhar, let me say this, I am very clear about it. Paytm has top-of-mind recall, Paytm has a product, Paytm has a technology, Paytm has rather superior technology. I am going to say that also very clearly now that I know of what everybody else is doing. I think the amount of attention that we are able to do it is something that we believe many others have to monetize. We have understood what the monetization is.

Vijay Shekhar Sharma: There is lot of advertisement and lot of cross-selling that is attempted. Other products have also started to become, I would say, reason for our customers to move to us. In a way, lot of positives in both ways.

Prakhar Sharma: Good. Got it. Second question is, sorry, going back to the MDR on UPI. Just wanted to know, there are a couple of lobbies of merchants who are also trying to negotiate for a lower MDR, which includes the petrol pump lobbies, and maybe there are others, et cetera. When you have talked about the 2.5 bps as additional revenue pool that you might get, have you factored those negotiations or it is as is, where is sort of calculation?

Madhur Deora: We have taken the framework from NPCI as is, because again, you end up going into many, many scenarios. I will point out that it was postponed maybe a few days, maybe a couple of days before the implementation go live. Our understanding is whatever those things are all sorted out. Had they not postponed it by 1 or 2 days, keeping in mind Diwali and festive season coming up, then it would have gone live on 15 October in the format that they have put out there. There is no mention that they are revisiting the framework or anything like that. Again, given we are doing an earnings call and given this development has happened, we thought it was important. It is unusual for us to comment on something which is not implemented yet.

Madhur Deora: But given it is a major factor and there is a lot of analysts have asked about it and investors have asked about it, we did want to put the estimate out there. My best guess is that the framework will not change right now, but I could be wrong. Obviously, I do not control it, but we are reacting to the framework as it exists and is, quote, final.

Prakhar Sharma: Got it. The last part is that, on the lending side, you have had a great growth. But when you look at the customer base, if at all now or even in later, can you give us some insight on how good the portfolio or these customers are and what are any of the risks that you are monitoring? It could be regulatory, in terms of pricing, et cetera, or even any of the cross-sell like insurance there is this huge paper that is there, if that is of a relevant outcome for you from insurance attachment that goes with it. So any clarity on that? Because it has been your fastest growing revenue pool right now.

Vijay Shekhar Sharma: So, Prakhar, the good news is that we did not have any insurance revenue. So all upside downside is not belonging to us potentially there. Neither we tagged or we were topping up some margin by cross-selling, tagging along insurance or something. So nothing of insurance. Quality of customers, I think the core answer is that our disbursement are growing, per lender count and the volume are growing. And in my opinion, lenders grow once they are happy with the kind of customers they are getting. Book responsibility belongs to them and our responsibility is of disbursement and collection. So we ourselves continue to keep an eye that we are collecting good and collecting nice. I think in a bigger macro sentence, I can say that our collections level of details tell us that there is a huge opportunity and festivities are showing up.

Vijay Shekhar Sharma: And we believe that the kind of. It is an AI language recipe, by the way. It is not a chef language. The recipe that we have built of financial services distribution, credit distribution, is something that is enough unique, and I am pushing it as much into AI so that it is not even humanly dependent internally and so on. So we will see lot more. I do not think there are something that we are looking and we are not talking about it. We rather are always discounting in advance if you know in past. So right now, there is not much that I do not see anything. Madhur, anything?

Madhur Deora: Just to clarify. So Prakhar, on merchant loan, we do give ECL data. It is largely unchanged in terms of the range that we give. PL, of course, is distribution business only. I just wanted to add that we take huge responsibility of being cautious on this business. While on the one hand, we keep trying to improve the funnel and the lendable base, like Vijay mentioned earlier, that is what we count on for the growth of the business. We don't count on, hey, we are going to be reckless and loosen the policies and those sorts of things. There is a reason why we want to be very cautious and very responsible about this, because now we have over a dozen lending partners. Many of them have been with us for three, four, five years now.

Madhur Deora: We also think that we can create something which is a huge agent for financial inclusion if this continues to scale up linearly and at a fast pace for the next five, seven, 10 years. We think this is the product that can create huge impact to small merchants in India with financial inclusion, employment, investment. So many great things can happen. Like Vijay showed at the beginning of the meeting in the presentation, a model which is also, we feel like we are pioneers of. We could take to other countries as well because this is a problem which obviously we are going to prioritize solving in India first, but there is also a problem which is unsolved many other parts of the world. But the starting point of that, you have to be cautious and responsible because it is a credit business.

Madhur Deora: You have to recognize it for what it is, and you cannot afford to have six good quarters and then two bad quarters. That kind of sets you back not two quarters, it sets you back many more quarters. So you have to recognize it for what it is and be as cautious as you can be.

Vijay Shekhar Sharma: Prakhar, like Madhu said it, we do not want it to look like there is a future time bomb sitting in our revenue. One thing is very clear, that is why conservative accounting, not letting revenue come in, which could be discounted obligation in future. The best thing I can tell you is we want to be distributors, technology company. We don't want to be the book owner company. We have announced it to the public a number of times. I like financial services business, but not so much that we end up taking the weight of the book on our shoulders. We will remain a technology platform, a platform business that compounds by consumer and more usage and customers include merchants and consumers both.

Vijay Shekhar Sharma: It is a technology distribution business, and I am very happy to say that SKU that we distribute, if you were to look at it in a slang way, credit is very highly in demand, and it requires logistics equivalent of, if you will, collection. Voilà.

Prakhar Sharma: Absolutely. Perfect. Thank you so much, and best wishes to all of you.

Vijay Shekhar Sharma: Thank you.

Operator: We will take the next question from Gaurav, followed by the last question of the day from Rahul Jain from Dolat Capital. Gaurav, you may go ahead.

Gaurav Rateria: Hi. Thank you. Hi. Congrats, Vijay. Congrats, Madhur. A couple of questions. First, the MTU acceleration that we have seen, is this led by better cross-sells or improving churn? It appears that your CAC has fallen substantially. How sustainable is this?

Vijay Shekhar Sharma: Gaurav, idea is that we have been using these words, but I am going to repeat the same words that are written. When you start to look at whom do you want to acquire, you spend less money on spreading in a wider customer base. So per customer who is a valuable customer, it shows up as a lower CAC. We have large enough budgets. We want to expand and expand the customer base, for sure. We will spend more money on customer acquisition, but like I always say, the valuable customers. Not like spray and pray, get the large number of customer and hope that there is a UPI GTV, which is converting someday in revenue. That being the case, how has the CAC improved? Just by focusing on whom to acquire or not acquire, as much precise that we can become. Who allows it?

Vijay Shekhar Sharma: The AI models allow this to happen. Our models are made by us. Our models are not third party. This is a very important sentence. We are not renting intelligence from outside. We make our own models. We make our own system and capabilities. That is why we have been able to knowingly give these outputs and the elusive dream of AI that it will behave N equal to one, it will behave and deliver impactful outcomes on cost of operating and revenue upside. That is what we stand for.

Gaurav Rateria: All right. My second question is on the investments that is going in the AI part. Of course, right now it is a drag on the P&L. When it starts generating revenue, it will be accretive from an earnings point of view. So how big is that drag right now? What would be the operating leverage that we can think about it?

Madhur Deora: I wouldn't say it's a drag. Sorry to interrupt.

Vijay Shekhar Sharma: It's an uncomfortable.

Madhur Deora: Yeah

Vijay Shekhar Sharma: I do not know how the migration of cloud from other payment system to the new payment system and sense it, absolutely no drag. Every dollar that we spend on AI has more number of dollars made than ever. Absolutely no drag. Either it has accounted for saving more cost than it has spent, or it has earned more revenue than it has spent. So Gaurav, absolutely no drag. We are not bullshitting on random KPI call. How many tokens do you spend? We do not even talk about that. We rather are one of the most efficient users. Madhur was invited by Cursor to become part of the global CFO council they made only because they said you are the world's fourth most optimum coding model user in the world. So I am sorry to say this, absolutely no drag, absolutely no confusion.

Vijay Shekhar Sharma: Cloud cost increase is due to our migration of two machines running into becoming one consolidated machine, and all three switched on for some time, and they optimize.

Madhur Deora: Sorry, let me just clarify that cloud expenses have gone up. There are two main reasons for this. One reason is this consolidation that Vijay mentioned, which has nothing to do with AI. We had our online business payment stack in a subsidiary. Then the offline business moved to that subsidiary end of last year. We were running two different stacks. Because there was one payment stack for online, one for offline. Beginning of last quarter, we started a project to consolidate those, which gives us higher TPS and better efficiency. That project requires certain one-time cloud costs. Because of the way the data queries work and so on. Most of that was done last quarter. Some of this will be done this quarter. I am not saying that this quarter, suddenly the cost will go down. That was the major component.

Madhur Deora: The second component, yes, we are spending more on AI. Gaurav, in our case, it is not, "Hey, you spend on some AI projects now and you will get the benefit 6 to 12 months from now." Maybe it is the case for other companies, I cannot comment on that. I think if it is different, I would say it is probably because we already work in a very data-rich environment. If AI changes the decision, for example, that put do more sales effort here, do more service effort here, or visit this merchant versus another merchant, that is how we are running our business anyway. AI is giving better inputs, for example. If AI is helping us deploy something faster, it is, hey, instead of deploying it in 3 or 4 weeks, we are deploying it in 2 or 3 days.

Madhur Deora: You are getting that uplift as a result. Because we are very data-rich, very data-led in our decisions, and it is end-to-end technology anyway, the impact of a lot of these AI things that we do starts to show up almost immediately. Of course, there are greater long-term benefits because models are getting better. They are getting smarter about looking at our context and so on. Yes, but more than 1x, for sure, multiple X benefit we think we get right away in that quarter. Then over time, hopefully, we get better and better.

Gaurav Rateria: All right. Last question, Madhur. How to look at the sustainable operating leverage in the business, like every incremental dollar that you make in CM, how much of that will flow into the EBITDA? Similarly, how much of that EBITDA will flow into the free cash flow on a sustainable basis?

Madhur Deora: So we don't try to manage it quarter and quarter, but at least the target that when I take a step back, the way I look at it is, our indirect expenses, including higher expenses in marketing and sales and service and cloud expenses, et cetera, should over a three, four quarter period, grow at less than half of revenue growth. Revenue growth/CM growth, assuming CM through the cycle is stat-ish, should grow half of CM growth. Let's take CM growth to be a little bit more precise. That does two things. One is the structural operating leverage. Second is if you can accelerate revenue growth, then you get accelerated operating leverage.

Gaurav Rateria: And similar thing on the free cash flow.

Madhur Deora: Free cash flow also, where there is this component of CapEx, which we'll give more guidance on next quarter. But yeah, broadly, free cash flow will work in EBITDA terms.

Gaurav Rateria: Got it. Thank you.

Madhur Deora: And just to be clear, we do EBITDA. We do not do adjusted EBITDA, so no ESOP cost. ESOP cost already after that.

Gaurav Rateria: Got it.

Operator: Thanks.

Madhur Deora: Thank you, Gaurav. Good to see you again. You want to take, Rahul? I think we lost. Rahul, go ahead. Hi.

Rahul Jain: Yeah. Hi. Just one last question from my side. I just wanted to understand how the majority of some of your lending partner has evolved over a period of time because they have been now using platform like us and we are clearly seeing that they are scaling the capital that they are deploying. But in terms of getting respect for the data that we are trying to provide, because one thing is using it as a digital channel, and one thing is respecting the data that we have. So is it being seen in terms of the approval rate of their collaboration on our data or is it still more restricted to their own ways of underwriting? That is what I wanted to understand.

Madhur Deora: I think scaling up is a measure, Rahul, of the fact that they have more confidence on our insights. I think there are other aspects of it, though, which is also they have more confidence over time on our collection capability, because remember, we help them with distribution and collection. So collection capability. As they scale up, they spend a lot more time with the collections team as well to understand how we monitor collection, how we do early warning signals.

Madhur Deora: It is not just about, "Here, somebody went delinquent, now can you go collect the loan?" Actually, we have the ability to look at early warning signals and make sure this sales and service team expansion, part of it is in this area, that do early intervention to make sure that the merchant actually does not drop below a certain GMV because we see daily GMV, of course. So they have more confidence in collection, and then they also come on board some of the journey that we would have had with other lending partners, which is to say, how to think about repeat business, how to think about top-up business, how to think about newer segments, newer PIN codes, et cetera. So that is a constant dialogue. There is a lot of collaboration and dialogue between us and lending partners.

Madhur Deora: Of course, they start with something that they understand already quite well. But over time, many of them, I would not say all of them exactly at the same pace, but many of them are curious to say, "Hey, what are the factors for scale-up of this?" Part of that is also, obviously, sorry, I forgot to mention technology as well. They will work with us to say, "Hey, what are the bottlenecks in this? Is there like a KYC failure that we need to address? Is there something else that we need to address?" So they will work with us on many of those things as well.

Rahul Jain: Sure. On the marketing business, have we mentioned that what is the driver in this particular quarter and how soon we see a meaningful number on the AI revenue, let us say any milestone number, INR 500 crore or 5% on our revenue, any benchmark, how soon we could expect that?

Vijay Shekhar Sharma: I think we probably will take at least two, three quarters more, at least, because it is a brewing thing. It is a small revenue per merchant, and sizeability requires size enough. In the large revenue buckets that are swinging the revenue, it will for some time show small, but then it can grow. Maybe by same quarter next year, we should look at what it has done.

Rahul Jain: Sure. That is it from my side. Thank you so much.

Madhur Deora: Thanks, Rahul.

Operator: Thanks, Rahul. With that, we have come to an end of this call. Thank you so much for joining, everyone. Have a good day.

Madhur Deora: Happy Diwali.

Madhur Deora: Thank you, everyone.

Vijay Shekhar Sharma: Happy Diwali, everyone.

Madhur Deora: Is there more music, Vijay, or we ended?

Vijay Shekhar Sharma: Yeah, a lot of people missed the music.

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