Deloitte Flags Dunzo’s Mounting Liabilities, Raises Doubt On Ability To Continue As A Going Concern

Deloitte, which audited the financial statements of Dunzo for the financial year 2022-23 (FY23), flagged material uncertainty over the quick commerce startup’s ability to continue as a ‘going concern’.

In accounting parlance, ‘going concern’ refers to a firm that has enough resources and revenue avenues to stay afloat and avoid any potential bankruptcy risks. In simple words, Deloitte hinted that there are material concerns about Dunzo’s future ability to generate enough revenues to continue operating. 

The disclosures were part of the quick commerce platform’s financial results for FY23. The troubled startup reported a nearly 4X YoY rise in net loss to INR 1,801 Cr in FY23 on an operating revenue of INR 226.6 Cr.

“The group has incurred a net loss of Rs 1,801.8 Cr during the year ended 31st March, 2023… These events or conditions, along with other matters… indicate that a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern,” the auditor said in its comments. 

The group encompasses the parent Dunzo Digital’s subsidiaries – Dunzo Merchant Services and Dunzo Wholesale. 

Spelling out its rationale, Deloitte said the group’s liabilities in FY23 exceeded its assets by INR 325.8 Cr, which were incurred primarily on account of ‘significant high operational costs for building customer base’. 

Adding further, the auditor said that the startup’s ability to operate as a ‘going concern’ is largely contingent on the availability of additional funding and improvement in business operations. 

Reacting to the auditor’s concerns, Dunzo said it has scaled up its operations since the period for which Deloitte filed the report. 

“The audit report is from six months back and we’ve made significant developments since on business and funding. In FY23, our overall platform GMV crossed INR 1,500 Cr representing the true scale of our business. Crucially, our business burn is now neutral as we successfully implemented cost cuts and more importantly optimised our store network for Dunzo Daily, moving to a hybrid model…,” said a company spokesperson. 

Dunzo also said that its logistics/B2B vertical continues to be a strong revenue generator for the company, growing by more than 128% while becoming GM neutral. It did not specify the time period for the growth metric. 

“There’s a lot to be excited about – from our growing presence on the ONDC network, our strong logistics business, to the new avatar of Dunzo Daily. We are aiming to hit corporate level profitability in 12 months,” added the spokesperson. 

Dunzo last raised a financing round of $6 Mn debt from Blacksoil in November last year but reports have surfaced that the company has raised even more debt since then. Curiously enough, auditors had reportedly flagged similar issues even in FY22 but the situation has gone further sideways since then. 

Dunzo has been facing a severe crash crunch for the last few months. In July, the company deferred the payment of salaries and capped payout at INR 75,000 per month per employee. Since then, Dunzo has continued to delay payment of salaries even as it has laid off a major chunk of its workforce. The company is also facing the ire of vendors to whom it owes money. 

Between 2018 and 2022, the company raked up cumulative losses to the tune of more than $150 Mn against a revenue of $12 Mn. The startup even burnt through the $240 Mn funding raised from Reliance to fuel its expansion spree. 

The startup has been looking to raise about $100 Mn for nearly six months but hasn’t found success so far. Amid all this, it has also witnessed a slew of high-level exits, including that of cofounder Dalvir Suri. As the company trims operations and pivots to a hyperlocal model, it remains to be seen if it is able to weather the current crisis.

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