By Dimpal Gulwani and Siddhi Nayak
(Reuters) - India's Paytm barely slowed its revenue decline in the second quarter, while its user base dwindled in its key digital payments business, indicating a slower-than-expected recovery from a central bank-ordered shuttering of its banking unit.
Shares of Paytm, which had in May forecast a "meaningful improvement" in revenue and profitability from the second quarter, sank as much as 7.7% on Tuesday.
The country's financial regulator wound down Paytm's banking unit in January due to persistent compliance issues, sparking worries about its key digital payments business and triggering a meltdown in the stock.
And while Paytm got regulatory approval to run as a third-party app for its existing digital payment customers, it has yet to get clearance to sign on new customers.
As a result, its monthly transacting users fell 25% year-on-year to 71 million and about 9% from the previous quarter.
Its revenue from the payments business sank 37% in the second quarter, exactly the same as the previous quarter, while its contribution to overall revenue slipped from about 59% to 57%.
Paytm's overall revenue, which also includes its loans business, fell 34%, slightly less than the 36% slide in the previous quarter.
Separately, the company said it will provide a default loss guarantee (DLG) for up to 2.25 billion rupees to its lending partner SMFG India Credit Co for loans disbursed to merchants.
Paytm expects the DLG model to bring more capital to disburse merchant loans and is open to using the model with more lending partners, although not all lenders have asked for it, the management said in an analyst call.
Its contribution margin, a measure of revenue less cashbacks and charges such as payment processing, rose sequentially to 54% from 50%.
Paytm posted a net profit of 9.28 billion rupees, its first-ever since listing in 2021. But that was mostly due to a 13.45-billion-rupee gain on the sale of its ticketing business to food delivery company Zomato.
Excluding that and taxes, its loss was 4.07 billion rupees in the second quarter, less than 8.39 billion rupees in the previous quarter but more than the 2.73 billion rupees a year earlier. ($1 = 84.0500 Indian rupees)
(Reporting by Dimpal Gulwani in Bengaluru; Editing by Janane Venkatraman, Dhanya Skariachan and Savio D'Souza)