Paytm braces for near-term Ebitda impact as digital payment infra incentive lapses
The PIDF incentive, which contributed ₹216 crore over the nine months ended December 2025, expired in December and will not recur. Paytm will also have to shield tax on other income from the coming financial year, analysts said.
One97 Communications, the parent of fintech company Paytm which reported its third consecutive profitable quarter, expects near-term Ebitda to be hit following the expiry of an incentive to develop digital payment infrastructure in small towns.
“In the very short term, we will take the Ebitda impact," founder Vijay Shekhar Sharma said during the post-earnings call, referring to the upcoming March quarter. “But over time, we’ll be able to recover more by offsetting this."
Paytm expects to recover some of the lost incentive revenue through deeper merchant engagement and targeted sales efforts.
“We should be able to offset at least 30% of it in a responsible situation," Sharma said. “The remaining impact, yes, that will be felt in the near term."
The Payment Infrastructure Development Fund (PIDF) incentive, which contributed ₹216 crore over the nine months ended December 2025, expired last month and will not recur. The Reserve Bank of India operationalized PIDF in January 2021 to bridge the digital divide in payment acceptance infrastructure in tier-3 to tier-6 centres, the northeastern states, and the Union Territories of Jammu and Kashmir and Ladakh.
The contribution margin, which indicates how a product contributes to a company’s overall profit, is expected to settle in the mid-50% range without PIDF support, compared with 57% reported in the December quarter, the company said in a letter to shareholders. Chief financial officer Madhur Deora said the extent of the impact will depend on how subscription revenue scales up.
“If we are able to clock higher subscription revenue, the contribution margin will be okay. But if it comes from sales revenue, margins could be impacted," he said.
On Friday, Paytm reported a profit after tax of ₹225 crore in the December quarter compared with a loss a year earlier and a profit of ₹21 crore in the September quarter. Ebitda rose sequentially to ₹156 crore from ₹142 crore, with margins steady at 7%.
Labour code impact
Company executives said operating leverage from revenue growth and tighter cost controls helped offset higher consumer acquisition costs and the full impact of the new labour code. In November, labour laws in the country were overhauled and consolidated, which demanded significant updates to the HR, compliance and payroll systems of Indian companies.
“Every quarter, our cost optimization is continuing," Sharma said. “We are investing in the future and removing what we don’t want to carry forward."
Analysts flagged a potential medium-term drag from taxation on Paytm’s other income. Piran Engineer, vice-president and research analyst at CLSA, said Paytm currently does not pay tax on the interest it earns from bank deposits, but this will change from the next financial year.
“The interest income is around ₹800 crore, which could translate into a tax outflow of roughly ₹200 crore annually," he said, adding that this could weigh on profit even if core operating performance remains steady.
The company did not comment on this on the earnings call.
Revenue from operations rose 20% year-on-year to ₹2,194 crore and increased 6% sequentially. Contribution profit climbed 30% year-on-year to ₹1,249 crore and 3% quarter-on-quarter as promotional spending increased and PIDF-linked benefits tapered.
Revenue from payment services grew 21% year-on-year to ₹1,284 crore and 4% sequentially, remaining Paytm’s largest revenue driver. Net payment revenue increased 25% year-on-year to ₹613 crore, supported by higher processing margins and growth in merchant subscriptions, the company said in the letter to shareholders.
The company’s merchant subscriptions rose to 1.44 crore, up 27 lakh year-on-year. Paytm said the growth is being driven by engagement rather than raw user additions.
“The focus is on high-quality users and building retention," Sharma said. “That is the path to market share gain."
Financial services
Revenue from distribution of financial services rose 34% year-on-year to ₹672 crore and increased 10% sequentially, led by merchant loans and wealth products. Customers availing financial services rose to 7.1 lakh from 6.5 lakh in the September quarter.
Merchant loan distribution remained resilient, driven by repeat borrowers and a growing device base, while consumer lending stayed slow. Its buy-now-pay-later product, relaunched last quarter as a UPI-linked overdraft under Paytm Postpaid, is scaling up steadily. Sharma said the customer base had reached six digits within three months, with early trends showing stable asset quality.
The company plans to reintroduce its wallet product, though at a smaller scale, for “consumer completeness," Sharma said. Deora, however, downplayed its strategic significance.
“It might not be as sticky or relevant as a product for us," he said.
With rival PhonePe expected to list soon, the management pushed back against comparisons focused purely on user share.
“Our merchant base is a superior merchant base in terms of quality," Sharma said. “Merchants who are more engaged are more likely to pay, and that shows up in monetization."
Paytm’s marketing services revenue fell 11% year-on-year to ₹238 crore but rose 4% sequentially on festive travel demand. Indirect expenses declined 8% year-on-year to ₹1,092 crore, while depreciation and amortization fell 19% to ₹133 crore due to lower device costs.
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