PhonePe Limited

A) PhonePe Limited — Business Model (from DRHP, January 2026) This is the Updated Draft Red Herring Prospectus (UDRHP-I) for PhonePe's upcoming IPO. Promoters are Walmart (via WM Digital Commerce Holdings) — which owns ~71.77% pre-IPO. The IPO is a pure Offer for Sale (no fresh issue), meaning PhonePe raises zero from this IPO — only existing shareholders exit.

1What PhonePe Actually Is PhonePe describes itself as a technology company that builds digital platforms across three broad areas: Payments, Digital Distribution, and Financial Services. Think of it as a super-app built on top of UPI rails — but the business model is more nuanced than just a payments app.

2Revenue Streams — The 4 Buckets

3Consumer Payments (63% of revenue in FY25) This is the biggest engine. Revenue comes from: Transaction processing fees — earned from partner banks for P2P transfers; from telcos for recharges; from BBPS for bill payments; from travel agencies for ticketing Digital incentives — for P2M UPI transactions below ₹2,000 to small merchants, PhonePe receives a share of the digital incentive paid to the Payer PSP bank (computed as % of TPV) Platform/convenience fees — charged directly to consumers for select services

4Merchant Payments (~27-28% of revenue) Fees earned from merchants for payment acceptance infrastructure — QR codes, POS devices (SmartSpeaker, POS terminals), and online payment gateway. Revenue comes as a % of TPV or fixed per-transaction fees. This segment is growing faster and is strategically more valuable.

5Financial Services Distribution (lending + insurance) Lending Distribution — PhonePe acts as a DSA (Direct Selling Agent), connecting users to partner lenders for personal loans, home loans, etc. Revenue = distribution fee/commission Insurance Distribution — sells insurance products (health, term, motor, travel) via IRDAI-licensed subsidiary PIBSPL. Revenue = commission Wealth Broking — mutual fund distribution and stock broking via PWBPL (AMFI/SEBI registered)

6New Platforms (early stage) Share.Market — stock broking + MF distribution platform Indus AppStore — an Android app marketplace (alternative to Google Play), targeting India's vernacular/Tier-2+ user base Pincode (hyperlocal commerce) has been wound down B) Key Financial Scale (FY25) Metric FY25 Revenue from Operations ₹7,115 Cr Revenue Growth YoY 40.5% Total Consumer Transactions 90.27 billion Customer TPV ₹132.7 trillion Monthly Active Users 290 million Life-till-date Registered Users 618 million Monthly Active Merchants 11.3 million Critically — the company is still loss-making. EPS was (₹37.46) in FY25, (₹45.17) in FY24, (₹68.40) in FY23. Losses are narrowing rapidly but profitability is not yet achieved. C) How the Economics Actually Work The core payments business (UPI P2M) is a zero-MDR regime — merchants pay nothing. So PhonePe earns primarily via: Government incentive schemes for processing UPI transactions Convenience fees on select categories (travel, insurance premiums) Merchant fees for value-added services (devices, analytics, ads) The real monetisation thesis is the classic fintech playbook: use payments as the acquisition channel, monetise through financial services (lending, insurance, wealth). As the mix shifts from payments to financial services, margins should structurally improve. D) Key Risks to Understand

1UPI volume cap — NPCI has proposed a 30% cap on any single TPAP's share of UPI volume, deferred to December 2026. PhonePe currently holds ~48% UPI market share, so this is an existential regulatory risk.

2PSP bank concentration — PhonePe depends on just 3 PSP banks (Yes Bank, Axis Bank, ICICI Bank) to process all UPI transactions. Any disruption is a major operational risk.

3Revenue concentration — 87-91% of revenue still comes from payment services. The financial services diversification, while happening, is still early.

4Zero fresh issue — the IPO proceeds go entirely to Walmart and other selling shareholders. PhonePe gets nothing to fund growth, which raises questions about the purpose for retail investors.

5Still loss-making — no P/E ratio can be computed. The only listed peer is Paytm (One97 Communications), which is also loss-making. E) How to Think About PhonePe as an Investment It's a distribution platform play, not a pure fintech. The bet is: 620 million registered users + 11 million merchants = unmatched distribution network As India's financial inclusion deepens, cross-selling lending/insurance/wealth to this base is the path to profitability The payments moat funds the financial services empire The question is valuation — at what price does this story make sense given it's still loss-making, Walmart is the one cashing out, and regulatory risks (UPI cap) are non-trivial.