In the Indian digital wallet space, the two names that come to the mind simultaneously are Paytm and MobiKwik. Having been founded at around 2010, both Paytm and MobiKwik had a very similar trajectory for developing their business until recently. Both were launched as recharge websites. Both expanded further into the fintech industry in the late 2013 and in early 2014, both of them launched their respective wallets as well.
However, post demonetisation, the growth trajectory for the two drastically shifted, particularly on the lines of the funding raised, valuations and the financials. Paytm was recently crowned with the title of a decacorn after its valuation hit $10 Bn. However, for MobiKwik, the graph turned stagnant and was last valued at $279 Mn in January 2018.
Coming to the financials, as per the ROC filings of FY16-17 accessed by Inc42 Datalabs, Paytm clocked a revenue of $126 Mn (INR 814 Cr) while MobiKwik has been able to generate a mere $5.5 Mn (INR 37 Cr). This indicates the scale of business both companies are engaged in.
A Brief On MobiKwik
Founded by Bipin Preet Singh and Upasana Taku in 2009, the Gurugram-based digital wallet claims to have over 55 Mn users and 1.5 Mn retailers on its platform. The company has raised a total of $151.9 Mn in six rounds of funding. Some of its prominent investors include Bajaj Finserv, Brand Capital, American Express, MediaTek and Sequoia Capital. Despite a network of such investors and $150 Mn+ in funding, its revenue stood at paltry $5.5 Mn (INR 37 Cr) in FY16-17.
Revenue Vs Expense
The fintech startup reported a revenue of $5.5 Mn (INR 37 Cr) for FY16-17, a drop of 2% as compared to its revenue in FY15-16. However, its operational expense spiked by 15% and stood at $24.44 Mn (INR 165.75 Cr) in FY16-17 as compared to the previous financial year.
A look at the trend:
- MobiKwik was bootstrapped for the first three years. The revenue trend is a clear indicator that MobiKwik did well and was profitable by the end of the first three years. Reported revenue for FY12-13 was $6.24 Mn (INR 38 Cr) and the profit registered was $0.01 Mn (INR 3.5 Lakhs).
- In 2013, MobiKwik got its first funding and the RBI license for the digital wallet. Its revenues soared up by an annual compound rate of approximately 175% till FY15-16.
- During demonetisation in November 2016, MobiKwik witnessed an 18X surge in transactions and reached a total user base of over 40 Mn downloads. While the numbers look great, there was little difference in the revenue reported for FY16-17 as compared to FY15-16 (in fact a drop of 2% was observed).
- A look at the gap between income and expense paints a clearer picture. Since FY13-14, the gap has increased from 48% to 77% in FY16-17. With expenses mounting and revenue slowing down, the company is expected to face a major hurdle in turning profitable anytime soon.
- Analysis of the line items on expense gives us a clue on how MobiKwik was unable to capitalise on the currency demonetisation of Nov-16. In FY16-17 marketing expense stood at 39% of its revenue. Compared to FY15-16 the marketing expense in FY16-17 dropped by 33%. This was quite unexpected given the demonetisation of old currency took place in November 2016. Looking at Paytm’s financials, Paytm spent $231 Mn (INR 1546 Cr) on marketing in FY16-17, a 75% increment compared to its last year’s spent. Clearly, Paytm milked the demonetisation to its advantage and MobiKwik was left behind.
- Furthermore, MobiKwik’s overall admin spend increased by 15% in FY16-17 as compared to the previous year. This increased admin expense coupled with reduced marketing spent diminished the startup’s ability to capture the slice of digital breadth provided by 2016’s demonetisation.
Losses have been increasing at a compounded annual rate of 157% in the period between FY13-14 to FY15-16. However, in FY16-17, the fintech startup has been able to cap the rate of increase in losses to 20%, recording a loss of $19.33 Mn (INR 131.10 Cr).
Having analysed the trends in revenue and losses, let us look at the financial health of this fintech startup.
Trends of the financial ratios:
- The solvency ratio for MobiKwik is in the negative (-1.12). The solvency ratio indicates whether a company’s cash flow is sufficient to meet its short-term and long-term liabilities. The lower a company’s solvency ratio, the greater the probability that it will default on its debt obligations. This must be a major concern for MobiKwik’s investors.
- The net profit margin for MobiKwik has been falling and as per the ROC filings of FY16-17, it was -3.51. The measurement reveals the amount of profit that a business can extract from its total sales i.e. profitability. The trend shows a constant drop, indicating that the startup is nowhere near being profitable.
- The debt to total assets ratio is an indicator of financial leverage. It tells you the percentage of total assets that were financed by creditors, liabilities and debt. For MobiKwik, the ratio in FY16-17 was 8%. This indicates the debt is primarily funded by equity, not assets.
Since its foray into the digital wallet sector, MobiKwik has been dipping its hands in almost all buckets of fintech industry.
- In 2016, MobiKwik announced that it will offer a 6% “annual profit” to its customers who maintain a monthly balance of at least $73.5 (INR 5K) in their wallets.
- At the same time, it also entered the microcredit business, by offering small loans worth $7-$37 (INR 500 – 2,500) to customers who are in urgent need of cash during a transaction and falling short.
- In 2016, it had also applied for a payments bank license to the RBI but was denied one.
- In November 2016, despite the boost received by the digital payments sector, MobiKwik has been unable to catch up with its rival Paytm.
- In 2017, MobiKwik tied up with various corporations like BSNL, ALTBalaji, Bajaj Finserv, Google and Tata Trust to extend its digital wallet services.
- In 2018, MobiKwik has come out with SaaS-based employee benefits and reimbursement solution ‘Magic’ and wished to focus on being more than ‘Just a Wallet’.
Despite all this activity, FY16-17 saw a dip in its income as compared to its last financial year. Furthermore, this dip in returns is observed at a time when the digital economy got a steroid boost from the currency demonitisation. The financial analysis of Mobikwik’s ROC filings further reveals the reasons for its inability to capitalise on the digital wallet market during November 2016 demonitisation. However, it would not be prudent to attribute the startups’ growing distance from profitability to the misallocation of departmental spent.
Consider it as a ‘demonetisation side-effect’ or the ‘demonetisation impact’, the Indian fintech space has now attracted global giants like PayPal, Google, Facebook, WhatsApp, making it a hotbed and consequentially a breeding ground for cut-throat competition. Not to forget, the entry of UPI and digital payment app BHIM, which leveled up the fintech game altogether in the country.
Moreover, now the homegrown digital wallet companies like Paytm have started exploring different verticals, be it banking, gold loans,insurance or wealth management. In such a scenario, it won’t be unreasonable to state that for MobiKwik, a concurrent burst of competition has already pushed its chance of profitability a lot farther.
In 2018, when major Indian startups are gearing up to achieve profitability, MobiKwik with its protean business model has a long and difficult road ahead.
[This is a part of the What The Financials (WTF) series launched by Inc42 Datalabs. We would be exploring the financial health of Startups and discuss its key metrics of growth, to read more articles click here.]