PhonePe’s H1 FY26 revenue growth masks dependence on discontinued and policy-led income

PhonePe’s revenue growth of 22% in the first half of FY26 appears steady on paper, but a closer examination of its draft red herring prospectus (DRHP) shows that a 19% chunk of this growth comes from revenue streams that are either discontinued or led by policy incentives. In what should be a clear red flag for prospective investors if the firm goes public as it has announced, the firm clearly hasn’t found a way to grow profitably yet, going by the numbers. 

As per the DRHP, PhonePe reported Rs 3,918 crore in revenue from operations for the six months ended September 2025, higher than the year-ago period. However, after excluding income from real money gaming (RMG), rent and related payment services, and government-linked incentives under the Payment Infrastructure Development Fund (PIDF), the company’s adjusted operating revenue declined to Rs 3,162 crore.

These exclusions together account for Rs 756 crore of reported revenue in H1 FY26. This amount comprises Rs 518.5 crore from rent and related payment categories, Rs 70.9 crore from RMG, and Rs 167 crore received as PIDF incentives. PhonePe has exited or scaled back these segments due to regulatory constraints, while PIDF incentives remain policy-led and non-recurring in nature.

As a result, the revised numbers present a materially different view of PhonePe’s core payments business that should be a cause for concern.

On a segment basis, consumer payments revenue dropped from Rs 2,200 crore to Rs 1,631 crore, a decline of 26%, after the removal of rent-related income and gaming revenue. Merchant payments revenue also fell from Rs 1,206 crore to Rs 1,019 crore, a drop of nearly 16%, primarily due to the exclusion of PIDF incentives.

This analysis places greater emphasis on gaming and rent-related payments, as these streams will not form part of PhonePe’s revenue profile in the current phase or in subsequent quarters of its financial trajectory.

In contrast, lending and insurance distribution revenue remains unchanged at Rs 513 crore, which makes it the only segment led by market activity and unaffected by these adjustments. However, with recent restrictions on lending through aggregation that have impacted all the platforms, growth here will be limited. The insurance space does offer the best prospects, but profits there will take a while as firms are still jockeying for market share.

Notably, these adjustments do not change the company’s bottom line. PhonePe reported a net loss of Rs 1,444.4 crore in H1 FY26 despite reported revenue growth, and profitability continues to remain out of reach.

While the 22% growth figure disclosed in the DRHP may suffice from a filing perspective, the adjusted numbers remove discontinued and policy-dependent income to present a clearer picture of PhonePe’s sustainable revenue base. This distinction assumes greater importance as the Walmart-backed fintech heads toward intensified valuation scrutiny and regulatory examination ahead of its public listing.