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Paytm just posted its first-quarter results for FY26, and for the first time in its listed life, it’s in the green. The company clocked a net profit of ₹123 crore; a sharp reversal from the ₹840 crore loss it posted in the same quarter last year. But despite the turnaround, investors aren’t throwing a party just yet. The question isn’t if Paytm is profitable; it’s how long it can stay that way.
Market sentiment was optimistic, though cautious. The stock jumped to a new 52-week high after the results, prompting analysts like Jefferies to upgrade their rating to ‘Buy’. But behind the charts and conference call soundbites lies a deeper story; one that involves tough calls, regulatory bruises, and a hard reset of the company’s business priorities.
Founded in 2010 by Vijay Shekhar Sharma, Paytm started as a mobile recharge app before becoming India’s poster child for digital payments. The company rode the post-demonetisation wave and IPO'd in 2021 with grand ambitions of becoming a full-fledged super app. It dabbled in everything from ecommerce and ticketing to financial services, becoming one of the most downloaded apps in the country.
But the last couple of years forced a course correction. In early 2024, regulatory heat on Paytm Payments Bank and lukewarm performance across verticals led to a strategic reset. Vijay Shekhar Sharma and team exited non-core verticals like Paytm Insider (ticketing) and doubled down on their core strength: merchant payments. AI adoption went into overdrive, thousands of roles were cut, and Paytm began repositioning itself, not just as a payments platform, but as a lean, tech-first financial infrastructure player.
What Q1 FY26 reveals is the early result of that pivot. Profitability, sharper cost discipline, and a clearer business model. But it also raises questions: Is this sustainable? What happens when competition intensifies again?
Let’s dig in.
How this quarter stacks up
After a volatile FY25, Q1 brought long-awaited stability and a healthy PAT.
# GMV is the rupee value of total payments made to merchants through transactions on paytm app or through in store payment solutions, and payments processed through Paytm payment gateway, over a period. It excludes any consumer-to-consumer payment service such as money transfers
*Monthly Transacting User
What changed this quarter?
Three things stood out this quarter: the jump in net payment revenue, the double-digit growth in distribution of financial services, and the aggressive trimming of expenses.
Let’s start with payments: still the beating heart of Paytm. Total revenue from payment services stood at ₹1,110 crore, up 23% YoY. Within that, net payment revenue (after payment processing fees) rose 38% YoY to ₹529 crore. This was thanks to a higher number of subscription merchants (up to 1.30 crore) and better payment margins. Device costs fell, sales team efficiency improved, and margins per transaction got healthier.
The second driver was loan distribution. Financial services revenue came in at ₹561 crore — double that of Q1 last year. Merchant loans remain the focus, especially repeat borrowers. Interestingly, Paytm’s biggest lending partner has now moved to a non-DLG model (no default loss guarantee), which reduces upfront costs for Paytm but also means revenue will now track more closely with actual loan performance over time.
Third, indirect expenses saw a steep drop by 30% YoY. This was no accident. Paytm’s AI-first strategy kicked in across the board: onboarding, fraud detection, customer support, and even credit risk modelling. This isn’t just cost-cutting; it’s structural automation.
Marketing spends fell 65% YoY to just ₹62 crore. ESOP costs crashed to ₹30 crore after the CEO voluntarily surrendered stock options. Headcount was down, but productivity wasn’t.
The operating profit puzzle, explained
Paytm’s return to profitability is more about how lean it has become.
The contribution margin hit 60% this quarter, the highest ever. That’s despite payment processing charges rising to ₹581 crore (↑12% YoY), as GMV volumes surged. Promotional cashback and incentives fell to ₹37 crore, and other direct expenses dropped by 20%.
EBITDA turned positive at ₹72 crore, compared to a loss of ₹88 crore in Q4. This, combined with ₹241 crore in other income (mostly from interest and investment income), helped swing PAT into the black at ₹123 crore.
Depreciation and amortisation (₹166 crore) was lower YoY, thanks to a shift toward device refurbishment instead of new procurement. The cash balance stood at ₹12,872 crore; a healthy cushion for future bets.
While Paytm doesn’t report return ratios like RoE or RoA explicitly, the operational trajectory shows improved capital efficiency through its asset-light, platform-led model.
What’s brewing next
Paytm has trimmed the fat and sharpened its edge. But where does it go from here?
The short answer: deeper into India’s merchant economy, and potentially beyond borders.
The company is doubling down on tier-2 and tier-3 merchant expansion, where Soundbox penetration is rising and digital payment habits are still taking root. It has also ramped up its salesforce, now over 38,900 strong, to widen its merchant funnel and cross-sell lending, insurance, and other financial products.
On the tech side, Paytm is making every layer AI-native. Whether it’s real-time fraud prediction, churn risk alerts, or customer segmentation for upselling, the company is building machine-first workflows supervised by lean human teams.
International expansion is also on the radar. The company is eyeing merchant-led fintech opportunities in the UAE, Saudi Arabia, and Singapore. These bets won’t move the needle right away but are designed for long-term growth.
The old super-app dream may be dead, but a sharper, product-led, infrastructure-first Paytm seems to be emerging.
Challenges that could shape the next few quarters
- Regulatory scrutiny still looms especially after the Directorate of Enforcement sent FEMA-related show cause notices
- The ₹57,120 crore GST demand notice on First Games (a JV) remains unresolved, although stayed by the Supreme Court
- Paytm’s shift to non-DLG loans may moderate financial services revenue growth in the near term
- Competition in merchant payments is intensifying, especially from banks, PhonePe and Pine Labs
- UPI monetisation (via MDR) is still uncertain — a potential tailwind or risk depending on RBI’s stance
What to track before the next earnings call
One big trend to watch is how fast non-DLG lending scales. If Paytm manages to grow disbursements without taking on risk, it may unlock a more sustainable model for loan distribution.
The company has also hinted at sharper focus on Paytm Money especially in mutual funds and equity broking, where user activity was soft this quarter. Expect updates there.
Investors should also monitor merchant subscription growth (currently at 1.30 crore), which remains a proxy for monetisation depth and retention.
And lastly, the UPI MDR debate could turn into a key swing factor. If monetisation is allowed, it opens up new revenue channels but also raises competitive heat.
The road ahead
Q1 FY26 was a clean break from the past. Paytm has shown it can run lean, automate fast, and extract more value from its merchant base. Profitability wasn’t the result of a fluke windfall; it was built on deliberate operating changes, from AI deployment to exiting low-return verticals.
But sustaining this trajectory will be the real test. With UPI economics, regulatory clouds, and intensifying competition in the mix, the next few quarters could be just as defining.
India’s fintech story is still young. For now, Paytm is back in the game with hard numbers.
Let’s see if it can stick the landing.
FAQs
Is Paytm profitable in FY26?
Yes, Paytm turned profitable in Q1 FY26 with a net profit of ₹123 crore. This marks the company’s first-ever quarterly profit since listing, driven by cost cuts, improved margins, and increased focus on merchant payments and financial services.
What led to Paytm’s profit in Q1 FY26?
Paytm’s profitability in Q1 FY26 was mainly due to a sharp drop in expenses, better payment margins, growth in loan distribution, and a jump in other income. AI automation and the company’s exit from low-margin businesses also played a key role.
How much revenue did Paytm make in Q1 FY26?
In Q1 FY26, Paytm reported revenue from operations of ₹1,918 crore. This was a marginal increase from ₹1,911 crore in Q4 FY25, with growth primarily coming from merchant payment services and financial distribution.
What is Paytm’s contribution margin in Q1 FY26?
Paytm’s contribution margin hit 60% in Q1 FY26 — the highest in its history. This improvement was driven by efficient cost controls, increased merchant subscriptions, and lower promotional incentives.
How is Paytm’s loan business performing?
Paytm’s financial services revenue doubled YoY to ₹561 crore in Q1 FY26. The company focused on merchant loans, especially from repeat borrowers. A key update was the shift to non-DLG (non-default-loss guarantee) lending, reducing upfront costs.
What are the risks for Paytm after Q1 FY26?
Key risks include regulatory scrutiny (like the ED’s FEMA notices), the unresolved ₹57,120 crore GST demand on Paytm First Games, and uncertainty over UPI monetisation. Rising competition from PhonePe, Pine Labs, and banks is another major concern.
What is the status of Paytm’s merchant base in FY26?
As of Q1 FY26, Paytm had 1.30 crore merchant subscriptions. The GMV (Gross Merchandise Value) processed stood at ₹5.4 lakh crore, showing consistent growth in merchant payment volumes across tier-2 and tier-3 cities.
How is Paytm using AI in its operations?
Paytm has adopted an AI-first strategy across fraud detection, customer onboarding, support, credit risk modelling, and retention. This automation has helped lower costs, reduce headcount, and boost operational efficiency.
Is Paytm planning global expansion?
Yes, Paytm is exploring international opportunities in merchant fintech services across the UAE, Saudi Arabia, and Singapore. These early bets are aimed at long-term growth beyond India.
What should investors track in Paytm’s next earnings?
Investors should monitor growth in non-DLG loan disbursements, updates on UPI monetisation, traction on Paytm Money’s mutual fund and broking platforms, and continued merchant subscription growth — all critical for sustained profitability.
