Paytm’s parent company, One97 Communications, reportedly seeks to significantly reduce its employee costs this fiscal year. According to a report by Financial Express, Paytm plans to lay off around 15-20% of its workforce, amounting to 5,000-6,300 employees.
This strategic move aims to save Rs 400-500 crore amidst the company’s growing losses. The decision reflects Paytm’s efforts to streamline operations and address financial challenges.
Employee Cost Reduction Strategy Amid Paytm Layoffs
In the last fiscal year (FY23), Paytm’s parent company, One97 Communications, had about 32,798 employees, with 29,503 actively working. Each employee costs around Rs 7.87 lakh on average. However, in FY24, the total employee costs surged by 34% to Rs 3,124 crore, increasing the average cost per employee to Rs 10.6 lakh.
To tackle this, Paytm initiated layoffs, terminating over 1,000 employees in December to streamline operations and cut costs. The exact number of employees for FY24 hasn’t been disclosed yet.
In an investor presentation, the company explained that the rise in employee costs was due to investments in technology, merchant sales, and financial services. Looking ahead, while continuing to invest in these areas, Paytm plans to trim costs in other departments. They aim to optimize their cost structure by using artificial intelligence, focusing on core business areas, and promoting high-performing employees to leadership roles.
Paytm Faces Financial Challenges
Paytm has been struggling financially, reporting a net loss of Rs 550 crore in the January-March quarter, compared to Rs 168 crore in the previous year. Revenue from operations also dropped by 3% year-on-year to Rs 2,267 crore in the March quarter. These difficulties arose on January 31 when the Reserve Bank of India (RBI) imposed restrictions on Paytm Payments Bank, halting new deposits and credit transactions.
In a letter to shareholders, Paytm’s Vijay Shekhar Sharma acknowledged the short-term impact on revenue and profitability due to the RBI’s actions. He explained that disruptions in Q4 led to a one-time loss of Rs 227 crore from investments in Paytm Payments Bank Limited (PPBL). Sharma anticipated that the full effect of the RBI’s actions would be seen in the first quarter results of FY25, with projected revenue slipping from Rs 1,500 crore to Rs 1,600 crore. However, improvements are expected in the second quarter of FY25 as certain paused products are restarted and operating metrics show steady growth.
Paytm’s Commitment to Long-term Growth and Sustainability
Despite facing challenges, Paytm’s management remains hopeful about achieving profitability soon. The company plans to hire more sales executives to strengthen its merchant ecosystem. Additionally, it aims to enhance governance by appointing subject matter experts as advisors or independent directors.
According to brokerage firm Motilal Oswal Financial Services, Paytm is expected to achieve EBITDA breakeven by FY26. The company’s valuation is based on 15 times the estimated EBITDA for FY28, discounted to FY26 at around 15%.
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