• 1800 120 77 88 99

Decoding the huge losses made by Paytm in FY19

Indian Startup Chamber

Admin
  • July 27, 2020
Share with

The Unicorn startups  over the last few years have been given special attention by the media and analyst. Unicorn startup are the startups which are valued over $1 billion. Generally, unicorns are famous for their growth, fundraises, branding and their impact on people and the economy. People take inspiration from the success story of these startups. Vijay Shekhar Sharma led Paytm is one of the most famous Unicorn in India, thanks to its valuations, investors. But now Paytm is in news again because of its sheer size of losses too. As Paytm’s enters in its 5th-year post-expansion into the wallets space, its losses continue to rise. The losses are not showing any signs of moderation as expected by the company, rather the losses have only spiked. The company’s evaluation of the business has been made both complicated and opaque with every new loss-making expansion.


Though Paytm is yet to file their AOC-4 with MCA, but according to reports the firm has shared its annual report with its shareholders according to which in FY19 Paytm reported a net loss of Rs 4,217.20 crore, which is almost 163% higher as compared to the previous financial year. The expenses of the company are on a rise at it increased by 59% to reach Rs 7,730 crore in FY19 in comparison to Rs 4,864.5 crore in FY18. The operation revenue recorded a small growth of 5.8% to reach Rs 3232.01 crore in FY19. For any firm which is one of the famous Unicorns of India, these numbers are not suited. The ideal circumstances for a unicorn are growth at a high level and losses dropping sharply, but for Paytm the story is completely opposite.


The expenses breakdown of Paytm is as follows:


  • More than half of its total expenditure (Rs 3,507.88 crore) was spent on customer acquisition.
  • Its total operational revenue stands at Rs 3,232 crore which is Rs 275.88 crore less than customer acquisition.'
  • It has spent Rs 2,832 crore on marketing and Rs 619.29 crore on advertisements which has increased by roughly 50% and 87% respectively.
  • Employee benefits Rs 856.22 crores.
  • It spends Rs 99.51 crores in Depreciation and its other expanses stood at Rs 1013.35 crores.


Paytm acquired the sponsorship for Indian cricket team in 2015, at a price of Rs 203 crore. The company agin went for the sponsorship for 2019-23 period, which will cost it ₹326.80 crores. Payment gateway expenses have increased in FY19 by 87.12%. There is a significant increase in the volume of transactions in its payment segment still the company has lost Rs 2615.34 crore in its payment segment. Whenever we recharge wallet or transact using Paytm Payments Bank, Paytm bears the MDR cost on customer’s behalf, this could be the reason for payment segment loss. 


The losses that Paytm has suffered in its four main segments are as follows:


Payment:


Amongst all the segment Paytm has suffered the biggest loss in its payment segment. The firm has lost about Rs 2,615 which is approximately double the Rs 1,213 crore loss last fiscal while revenue from this segment stood at Rs 1,756 crore which was Rs 988 crore last financial year.


Commerce:


The commerce vertical’s losses increased by 3.3 times to reach 1687.22 crore, and at same time its revenue saw a decline of 37% to reach Rs 1130 crore in FY19 as compared to FY18. Which leads to one conclusion that during last fiscal the company spent more to earn less.


Cloud:


It was the only segment that brought some good news for the company as the Cloud vertical had posted a profit of Rs 14 crore in FY19. However, its profit has decreased by 68% which is a cause of great concern for the company.


Others:


The other segment includes businesses of the group including wealth management. The loss encountered by Paytm in commerce section is not because of Paytm Mall. Services such as movie ticketing, selling travel deals and the provision of advertisement, brand promotions and technical support has caused the company a loss of Rs 1,687 crores.


Talking about the total revenue made by the company in FY19. Paytm made a revenue of Rs 3,232 crore which include royalty and custom access fees paid by associate companies like Paytm Mall to its parent company One97 Communications. Not just Paytm but its 27 subsidiaries have registered declines in FY19. Little which was acquired by Paytm in 2017 for $30 million has encountered a loss of Rs 85.88 crore in last fiscal. Similarly, Nearbuy and Paytm Money have shown the same trend and have registered losses of Rs 50.9 crore and Rs 36.85 crore respectively.



What can be concluded:


Looking at above stats and facts it can be easily accessed that Paytm’s financial health is not good. The company is trying to make up for the losses but its chances of chasing scale are possible until its investor has believed in it. The quite surprising fact is that company in FY19 has spent more on customer acquisition than its total operating revenues. The company is trying its level best to get a break in the next two-three fiscals. However, if we look at the gap between the negative operating cash flow and the growth of revenue and expenses, chances of Paytm IPO in the coming years lies still in darkness.


Though Vijay Shekhar Sharma has a stated his aim to go public in the next 24 months and we expect few more surprise from him in coming days. Paytm Payments Bank is encountering the same problems in small banking space. In we sum up everything, every time we use it Paytm loses money. The profit made from all users by the company is less than its loss of money in acquiring customers. After doing all this still the company has been pushed back to third place in terms of the preferred UPI app for the country behind Google Pay and PhonePe. To protect its position in the market today, or stand where it is, Paytm needs to make a transformation in its business model to do business in a better way.