Paytm’s First-Ever Profit: Why It Comes With an Asterisk

Fintech major Paytm reported a first ever quarterly net profit of ₹123 crore earlier this week. In the post earnings call, founder and CEO Vijay Shekhar Sharma was jubilant. He declared that the company would stop reporting ‘adjusted’ financials — a practice that has been popular with listed new-age firms over the last few years to paper over glaring losses — from the next time. 

On the face of it, Paytm did well in the June quarter. Its profit was in sharp contrast to a gaping loss of ₹840 crore in the same quarter last year. Its revenue from operations stood at ₹1,918 crore, marking a 28% jump year-on-year.

Dig a little deeper, and a significant driver of the company’s first profitable quarter becomes clear — “Other income” of ₹241 crore.

Other income refers to earnings a company generates from non-core business activities. It includes interest income, dividends, asset sales, or foreign exchange gains. Unlike revenue from operations, it’s typically irregular and not directly tied to the company’s main business, making it less reliable for assessing performance.

In simple terms, Paytm would not have been profitable without this extra cash it made during the quarter. The company itself recognised the higher other income in its earning statement, saying it was mainly because of interest earned on a tax refund.

To be sure, all companies typically report some form of other income, as they often earn from interest, investments, or incidental activities beyond their core operations.

An analyst who didn’t want to be named said, “YoY profit growth was boosted by a spurt in other income, steep fall in employee expenses, and significant cuts in marketing and promotional spends. So, I'm not sure about the sustainability of these profits.” 

Meanwhile, Paytm's revenue from Payment Services remained flat quarter-on-quarter at ₹1,044 crore, compared to ₹1,046 crore in the previous quarter (Q4 FY25).

Paytm significantly cut down its spending this quarter. 

In Q1 FY26, the company reported a notable decline in direct expenses, led by a significant drop in employee benefit costs, which fell by 33% year-on-year to ₹642.6 crore. The company attributed this reduction partly to its growing reliance on automation and artificial intelligence. In its earnings note, Paytm said, “Across the organisation, our workflow is moving towards AI-led systems to become machine first, supervised by humans,” highlighting how technology is helping streamline operations and reduce human-intensive costs.

While Paytm has now posted profits, its reliance on non-operating income raises questions about the quality and sustainability of these earnings, especially as reinvestment of maturing investments could yield lower returns due to earlier repo rate cuts. As the company mentioned in its release, “Other income will have a gradual impact on account of reinvestment of maturing investments at lower yields (100 bps repo rate cut earlier in the year).”

Meanwhile, an analyst who didn’t want to be named said, “The market is watching closely for any updates, like possible RBI-related reinstatements, which could impact sentiment.” He further added that the market will now closely watch whether this profit translates into consistent growth. That’s going to be the real test in the next two quarters.

In January 2024, the Reserve Bank of India (RBI) barred Paytm Payments Bank Limited (PPBL) from conducting key activities such as accepting deposits, processing credit transactions, and facilitating UPI services. The move was taken by the central bank as a result of alleged persistent compliance lapses. This included KYC violations, concerns over data sharing with Chinese-linked entities, and related-party transactions between Paytm and its banking arm. 

In response, Paytm overhauled PPBL’s board, publicly distanced itself from the bank, and saw founder Vijay Shekhar Sharma step down as its Chairman. To keep its UPI app running, Paytm got permission in March 2024 from NPCI to work as a third-party UPI app. Thus, instead of using its own bank, Paytm tied up with banks like SBI, HDFC, Axis, and YES Bank to manage UPI transactions.