Paytm's Q2 FY26: AI-Powered Growth and Strategic Expansion

Paytm, India's leading mobile payments and financial services distribution company, has reported a robust performance for the second quarter of fiscal year 2026, ending September 30, 2025. The company showcased significant growth across its core segments, driven by strategic initiatives, enhanced operational efficiencies, and a strong focus on AI integration. This quarter's results underscore Paytm's commitment to profitable expansion and solidifying its leadership in the digital payments ecosystem.

The company's operating revenue surged by an impressive 24% year-on-year, reaching ₹2,061 Crore. This growth was primarily fueled by an increase in subscription merchants, higher payments Gross Merchandise Value (GMV), and a substantial expansion in the distribution of financial services. Notably, Paytm's EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) improved significantly, turning positive at ₹142 Crore, representing a 7% margin. This marks a pivotal moment, reflecting the company's disciplined approach to cost management and its ability to leverage its scale for profitability.

The contribution profit for the quarter stood at ₹1,207 Crore, a remarkable 35% increase year-on-year, with the contribution margin expanding by 5 percentage points to 59%. This improvement was a direct result of enhanced net payment revenue, a greater share of financial services distribution revenue, and a reduction in Direct Lending Guarantee (DLG) expenses. While the reported PAT (Profit After Tax) was ₹21 Crore, it's important to note that this figure includes a one-time charge of ₹190 Crore for the full impairment of a loan to its joint venture, First Games Technology Pvt. Ltd. Excluding this exceptional item, PAT would have been ₹211 Crore.

Strategic Pillars: AI, Financial Services, and International Reach

Paytm's strategic focus areas are clearly defined, with AI at the forefront of its innovation agenda. The company announced a significant partnership with Groq, a US-based leader in real-time AI inference. This collaboration aims to integrate Groq's purpose-built LPU technology to enable faster, more cost-efficient AI inference across Paytm's platform. This advancement is expected to strengthen Paytm's data-driven decisioning, enhance transaction processing, risk assessment, fraud detection, and customer engagement. Management views AI not merely as a cost-saving tool but as a substantial revenue driver, enabling the creation of new products and services for both small and large merchants.

In financial services, Paytm is expanding its distribution network by increasing the number of lending partners and introducing new products like Paytm Postpaid, in partnership with a bank. The early results for Postpaid have been encouraging, with the company aiming for a sensible yet faster ramp-up. Merchant device subscriptions reached 1.37 Crore, an increase of 25 lakh year-on-year, demonstrating consolidated leadership in merchant payments. The company is also optimizing its device strategy by refurbishing and redeploying devices from inactive merchants, leading to higher active merchants and lower capital expenditure.

Paytm's ambition extends beyond India, with plans for international expansion. The company is evaluating select new markets to deploy its advanced technology stack for merchant payments and financial services. This initiative is expected to contribute meaningfully to growth within the next two to three years, with an initial focus on India-like markets and a long-term vision for developed economies. The company's approach involves both partner-operated and Paytm-operated models, ensuring prudent capital allocation.

Operational Efficiency and Future Outlook

Operational metrics continue to show positive trends. Monthly Transacting Users (MTU) averaged 7.5 Crore, a 6% increase year-on-year, driven by a product-led growth strategy and the addition of AI features. The company's focus on improving customer acquisition cost (CAC) to lifetime value (LTV) is yielding results, with lower marketing costs and higher retention rates. Furthermore, Paytm received in-principle authorization from the RBI to operate as an Online Payment Aggregator, enabling it to resume onboarding new online merchants, a significant regulatory milestone.

Despite a decline in Marketing Services revenue on a like-to-like basis, management explained this was a strategic optimization of consumer app properties to gain market share and improve retention. Indirect expenses, including ESOP costs, decreased by 18% year-on-year, reflecting improved efficiencies from AI and lower ESOP costs. Depreciation and Amortization are also expected to be lower in FY26, guided at ₹500-₹600 Crore. Paytm maintains a strong cash balance of ₹13,068 Crore, providing significant capital flexibility for future growth initiatives.

Paytm's Q2 FY26 results highlight a company in a strong growth phase, strategically leveraging AI, expanding its financial services footprint, and eyeing international markets. The focus on profitable growth, operational efficiency, and a robust balance sheet positions Paytm for sustained success in the evolving digital economy.