The intriguing case of Paytm Mall's financials: Three major unanswered questions

There has been a flurry of financial results getting filed by startups over the past two months. Most present a picture of rising losses, with revenue growth lying on a spectrum of modest to exponential. Of all the financials filed, there seems something odd with Paytm Mall's financials and there are three crucial unanswered questions:

1. The marketing and advertising fee that the company makes is shown to be growing but the shipping and logistics fee as well as payment gateway charges the company pays has fallen, which means that transactions/value of transactions would have fallen. However, there seem to be unreported sources of revenues flowing into the entity of which no details have been provided.

2. There was a Rs 712 crore (nearly $100 mn) payout that was made to Paytm in FY18 by Paytm Mall which seems to be uncannily missing in FY19. Why was this payment missing this year? Or, the corollary to the question would be: why was this payment made last year?

3. Paytm Mall paid Rs 1,072.49 crore to One97 communication in related party expenditure, making up 50% of the total expenditure, i.e. Rs 2,140 crore that it spent during FY19. As per the financial statements, these payments were made to receive ‘customer access and royalty services’ from its parent entity. Wouldn't Paytm Mall’s shareholders like eBay, who don't have a shareholding in Paytm, have an issue with their money being funnelled into Paytm to show higher revenues in Paytm? 

Especially when Paytm Mall itself is a massive loss-making company? Are these payments made just to inflate Paytm's revenue numbers? Maybe this explains why Paytm's revenue looks bloated when compared to other digital payment companies like Google Pay and PhonePe which are much larger than Paytm in the UPI ecosystem.

Although Paytm Mall’s total expenditure dropped by 17.11% from Rs 2,581 crore in FY18 to Rs 2,139.6 crore in FY19, the gross value of transactions with related parties went up by 87.4% from Rs 1,926.08 crore in FY18 to around Rs 3,610 crore in FY19.

Likewise, advertisement expenses recorded in books might have dived 197.6% to Rs 317.22 crore in FY19 from Rs 944.21 crore during FY18, the unmarked miscellaneous expenses in the balance sheet saw YoY growth of around Rs 249 crore from Rs 1,129.5 crore in FY18 to Rs 1408.17 crore in FY19. 

With all the corporate governance issues at Paytm and Paytm Mall, one would expect the company to be more transparent in how it reports its financials and related party transactions.

Paytm Mall had a very good chance to establish itself as the third-largest e-commerce company as Snapdeal and ShopClues were not in good shape during FY18. However, it failed to capitalise and instead got mired into problems including internal fraud that was investigated by E&Y. Besides, it also witnessed the exit of top-level employees which took a toll on the company.