PAYTM The Payment Aggregator License Is Finally Back - So Why Did Profit Crater 90%?

A Four-Year Regulatory Restriction Finally Lifts, in the Same Quarter a New Law Wipes Out a Loan

Two long-running threads in this blog's coverage of Paytm both resolved in Q2 FY2026 (quarter ended September 30, 2025) - in opposite directions. On August 12, 2025, the Reserve Bank of India granted Paytm Payments Services Limited (PPSL) "in-principle" authorization to operate as an online Payment Aggregator, finally lifting the restriction - in place since the RBI required a downward-investment approval from parent One97 Communications back in 2021-22 - that had barred PPSL from onboarding new online merchants. That's a genuine multi-year overhang clearing, and it lands in the same quarter Paytm posted its best operating result since the January 2024 Paytm Payments Bank (PPBL) action: Revenue from Operations grew 24% year-on-year to Rs. 2,061 crore, EBITDA^» improved to Rs. 142 crore (7% margin) from a Rs. 404 crore loss a year earlier, and Contribution Profit^» rose 35% YoY to Rs. 1,207 crore at a 59% margin.

The other thread closed less favorably. Parliament's Promotion and Regulation of Online Gaming Act, 2025 - which prohibits online real-money gaming outright - forced Paytm to fully write off the Rs. 190 crore loan it had extended to First Games Technology Private Limited (FGTPL), a real-money gaming joint venture this blog first flagged as a risk when its GST show-cause notice surfaced in last quarter's Beyond the Usual. The company's own headline bullet reads "PAT improved to Rs. 211 Cr (before one-time charge...) Reported PAT is at Rs. 21 Cr" - a 90% gap between the number management chooses to lead with and the number that's actually audited, the same pattern this blog has criticized every quarter since Q3 FY2022 (see Beyond the Usual below).

The Prescription

Paytm should use the newly restored payment-aggregator license aggressively, not cautiously. Four years of onboarding restrictions forced the company to grow its existing merchant base rather than acquire new online merchants at all - subscription merchants (devices) still grew 22% YoY to 1.37 crore even under that constraint. With the restriction now lifted, re-entering new-merchant online acquisition while payments economics (net payment revenue up 28% YoY to Rs. 594 crore) are already improving is the highest-value use of this quarter's operating momentum, and the company shouldn't let the years-long caution the RBI imposed on it become a permanent, self-imposed one.

What Paytm should stop doing is extending credit exposure to joint ventures in regulatorily fragile businesses. The FGTPL write-off wasn't really a credit-underwriting failure - it was a legislative act eliminating an entire industry overnight - but the underlying lesson still applies: a payments company whose core moat is processing and lending-distribution shouldn't also be carrying loan exposure to a real-money gaming JV, a business model that was always going to be one regulatory decision away from zero. The DLG^» exposure reduction flagged in last quarter's post shows management already understands this logic for its lending-partner book; it should apply the same discipline to related-party JV lending.

Key Financial Metrics

Q2 FY2026 (quarter ended September 30, 2025) vs. Q2 FY2025 (quarter ended September 30, 2024) and Q1 FY2026 (quarter ended June 30, 2025), consolidated, unaudited

FX: Rs. 88.84 = $1 (September 30, 2025 close). Year-ago and prior-quarter columns are in rupees only.

Metric	Q2 FY26 (Rs. Cr)	Q2 FY26 (USD)	Q2 FY25 (Rs. Cr)	YoY	Q1 FY26 (Rs. Cr)	QoQ
Revenue from Operations	2,061	~$232.0M	1,660	✅ +24%	1,918	✅ +7%
Contribution Profit	1,207	~$135.9M	894	✅ +35%	1,151	✅ +5%
EBITDA	142	~$16.0M	(404)	✅ Swung to profit	72	✅ +97%
Operating Income (loss)¹	220	~$24.8M	(231)²	✅ Swung to profit	143	✅ +54%
Net Income (reported)	21	~$2.4M	930	⚠️ -98%³	123	⚠️ -83%
Net Income (excl. FGTPL write-off)	211	~$23.8M	n/a	—	123	✅ +72%
Total Cash & Investable Balance (excl. customer/merchant funds)	13,068	~$1,470.9M	9,999	✅ +31%	12,872	✅ +2%

¹ Computed as EBITDA less finance costs and depreciation, plus other income and JV share, before exceptional items and tax. ² Q2 FY2025's comparable pre-exceptional operating result was itself a loss, before that quarter's own Rs. 1,345 crore exceptional gain from the entertainment-ticketing sale to Zomato pushed reported net income to Rs. 930 crore - a one-off that makes the reported-net-income YoY comparison in the row below misleading on its own (see next footnote). ³ This YoY comparison is distorted in both directions: Q2 FY2025's Rs. 930 crore reported profit included the one-time Rs. 1,345 crore Zomato gain, while this quarter's Rs. 21 crore includes the one-time Rs. 190 crore FGTPL write-off - neither figure reflects each period's underlying operating result, which is why the Operating Income row above and the Contribution Profit/EBITDA rows are the more reliable YoY comparisons this quarter.

This is Paytm's strongest quarter of underlying operating performance since the PPBL shock - revenue, Contribution Profit, EBITDA, and pre-exceptional operating income all improved both YoY and QoQ, with none of the base-effect distortion that flattered last quarter's YoY comparisons. The one number that looks bad - reported net income falling 98% YoY and 83% QoQ - is fully explained by the one-off FGTPL write-off, not by any deterioration in the operating business (see Beyond the Usual below). Cash continues to build, aided by a one-time monetization noted below.

Key Operational Metrics

Metric	Q2 FY26	Q2 FY25	YoY
GMV	Rs. 5.7 lakh Cr (~$64.2B)	Rs. 4.5 lakh Cr (~$50.7B)	✅ +27%
Registered Merchants (cumulative)	4.7 Cr	4.2 Cr	✅ +12%
Subscription Merchants incl. devices (cumulative)	1.37 Cr	1.12 Cr	✅ +22%
MTU (average)	7.5 Cr	7.1 Cr	✅ +6%
Key Financial Services Customers	6.5 lakh	6.0 lakh	✅ +8%

For the first time since this blog began tracking Paytm's post-PPBL numbers, every operational metric in this table is growing YoY, including MTU - the consumer-side metric that had been declining for six consecutive quarters through Q1 FY2026. Whether this marks a genuine consumer-side turnaround or one good quarter will need at least another quarter or two to confirm, but it's the first sign of broad-based improvement across both merchant and consumer metrics at the same time.

Payment Services, Distribution of Financial Services, and Marketing Services

• Payment Services (Rs. 1,146 Cr, 56% of revenue, +21% YoY, +10% QoQ): net payment revenue specifically - the portion after payment processing charges - rose 28% YoY to Rs. 594 crore, ahead of gross Payment Services revenue growth, meaning payment processing margins themselves improved, not just volume.
• Distribution of Financial Services (Rs. 611 Cr, 30% of revenue, +63% YoY, +9% QoQ): growth decelerated from the 100% and 79% YoY rates of the prior two quarters, but remains the fastest-growing line and the largest driver of Contribution Profit margin expansion, per management's own framing.
• Marketing Services (Rs. 228 Cr, 11% of revenue, -25% YoY, -8% QoQ): still declining on both bases, now the fourth consecutive quarter of YoY contraction in this line.

Segment Comparison

Segment	Q2 FY26 (Rs. Cr)	Q2 FY25 (Rs. Cr)	YoY	Share of Revenue
Payment Services	1,146	946	✅ +21%	56%
Distribution of Financial Services	611	376	✅ +63%	30%
Marketing Services	228	302	⚠️ -25%	11%
Other Operating Revenue	77	36	✅ +114%	4%
Revenue from Operations	2,061	1,660	+24%	100%

Distribution of Financial Services' growth rate decelerating for two consecutive quarters (100% → 79% → 63%) while its revenue share keeps climbing (19% → 29% → 30%) suggests the segment is maturing off a small base rather than accelerating further - still the right trend, just a slower one than the prior two quarters implied on a simple extrapolation. Payment Services growing 21% YoY, faster than last quarter's 18%, is the more encouraging read: the core payments business may finally be reaccelerating on its own, not just riding the lending line.

Beyond the Usual

A Rs. 190 crore loan to a gaming JV was wiped out by a law banning the JV's entire business, not a credit event

The June 2025 quarter's post and the March 2025 quarter's post both flagged First Games Technology Private Limited (FGTPL) - a real-money gaming joint venture in which Paytm held a Rs. 187 crore loan receivable and which faced a Rs. 5,712 crore GST show-cause notice. This quarter, Parliament's Promotion and Regulation of Online Gaming Act, 2025 prohibited online real-money gaming outright, and Paytm recorded a full impairment of its loan to FGTPL - now carried at nil value - along with the investment itself. The earnings release's headline "PAT improved to Rs. 211 Cr... Reported PAT is at Rs. 21 Cr" framing puts the Rs. 190 crore write-off in a parenthetical rather than the headline number, which is the same structural pattern - a large one-off excluded from the number management leads with - this blog has flagged in every Paytm post since Q3 FY2022. The write-off itself is a legitimate accounting response to a real legislative event, not a red flag on its own; the framing of it in the release is.

The multi-year payment-aggregator onboarding restriction is over

Following approval from the Ministry of Finance's Department of Financial Services in August 2024 for the downward investment structure the RBI had required, the RBI granted PPSL "in-principle" authorization on August 12, 2025 to operate as an online Payment Aggregator - lifting the restriction, first disclosed in this blog's earliest Paytm coverage, that had barred PPSL from onboarding new online merchants since the RBI first raised the compliance question in 2021-22. Subsequent to the quarter, the company's board also approved transferring its offline merchant-payments business into PPSL as well, consolidating both the online and offline merchant-payments businesses under a single regulated subsidiary - a structural simplification that only became sensible once the licensing overhang was resolved.

This quarter's YoY cash comparison still carries last year's PayPay monetization, not a new one

Of the Rs. 3,069 crore year-on-year increase in cash and investable balances, Rs. 2,372 crore traces back to the sale of Paytm's entire PayPay Corporation stake - a transaction that actually completed on December 13, 2024 (Q3 FY2025), as covered in that quarter's post, and simply still falls inside this quarter's trailing twelve-month comparison window. No new PayPay monetization happened this quarter; the stake was already fully sold and has generated no further gains or losses since. A reader comparing this quarter's YoY cash growth to prior quarters' organic build should know a meaningful chunk of the increase is this now-year-old, one-time realization repeating in the comparison, not fresh cash generation or a new monetization event.

What Management Chose to Emphasize on the Call

Vijay Shekhar Sharma opened the call, held November 5, 2025, by framing Paytm's future around three pillars: an expanding financial-services stack (merchant payments and credit already established, with money management, stock brokerage, and eventually insurance layered on), international replication of that same technology stack through partner-operated models rather than a consumer-facing Paytm app abroad, and AI - not just as a cost lever, as in prior quarters, but increasingly as a product and feature layer the company is building in-house. On the specifics, he confirmed Postpaid (the BNPL product suspended after the PPBL action) has relaunched with a new bank partner and is scaling faster than the original product did, having reached in a shorter span what took "probably a year and a half" the first time. Neither the FGTPL write-off nor the online-gaming ban that caused it came up anywhere in the call's Q&A - a striking omission given it's the reason reported profit came in 90% below the company's own "before one-time charge" figure this quarter, and the second consecutive quarter (see last quarter's post) where a material Beyond the Usual item went unaddressed by management on the call itself.

Target Valuation Range

EV/Sales-implied enterprise value: approximately Rs. 58,630 crore (~7.1x annualized revenue). Verdict: still too early for a full DCF, but this is the first quarter where the peer-multiple math is backed by operating results without a base-effect or one-off asterisk attached to the improvement.

Market cap → enterprise value	Q2 FY2026 (Sep 2025)
Share price (period-end)	Rs. 1,123.80
Shares outstanding	638,000,000
Market capitalization	Rs. 71,698 crore (~$8.07B)
Less: cash and investable balances (ex. customer/merchant funds, incl. one-time PayPay monetization)	Rs. 13,068 crore
Enterprise value	Rs. 58,630 crore (~$6.60B)

Peer-multiple sanity check	Q1 FY2026 (Jun 2025)	Q2 FY2026 (Sep 2025)
Annualized Revenue	Rs. 7,672 crore	Rs. 8,244 crore
Enterprise value	Rs. 46,079 crore (~$5.38B)	Rs. 58,630 crore (~$6.60B)
EV/Sales	~6.0x	~7.1x

Up again, tracking the stock's continued rally from Rs. 924 to Rs. 1,123.80 over the quarter. Unlike the prior two quarters, this rerating sits on top of genuinely improving underlying metrics (see Key Financial Metrics above) rather than a base-effect illusion or a single strong quarter - a real DCF still needs more consecutive clean quarters of free cash flow to anchor credibly, but the gap between "too early to value" and "enough of a track record" is narrowing quarter by quarter.

---