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Kunal Shah’s CRED spent Rs 727 to earn a rupee in FY20


Posting mind-boggling losses is nothing new for hyper-funded startups, especially when they are chasing scale and acquiring customers at any cost. While there are many startups that are in the red with minuscule operating revenue, CRED’s numbers are a story in themselves.

In its second year of operation, CRED has posted operating revenue of Rs 52 lakh by spending Rs 378.4 crore. The only saving grace was the financial income of Rs 17.56 crore it earned via interest on deposits, documents filed by the company with the MCA shows. 

After raising Rs 828 crore during FY20, CRED ramped up its spending across verticals and the Kunal Shah-led company managed to onboard 5.9 million credit card users with excellent credit scores.

But even after acquiring this rich customer base with a high propensity to spend and consume, CRED hasn’t been able to monetize its user base in FY20. While the two-year-old firm’s revenues were still minimal, its total expenditure shot up more than 5.9X to Rs 378.4 crore in FY20 from Rs 64 crore spent in FY19. 

It’s worth noting that CRED was operational for about six months in FY19. On a unit level, CRED spent Rs 726.7 to earn a single rupee of operating revenue during the fiscal ended in March 2020. 

To acquire new customers and trigger scale, CRED spent heavily on customer acquisition and brand development. Expenditure on advertisement and marketing was the largest cost centre for the fintech startup, accounting for 47.6% of the total expenses. 

Such costs ballooned 9.3X to Rs 180.3 crore in FY20 from Rs 20 crore spent in FY19.

The Bengaluru-based company also ramped up talent acquisition during the previous fiscal to keep up with its scale. As a result, expenses related to employee benefits surged 4.3X from Rs 17 crore in FY19 to Rs 72.51 crore during FY20. Notably, around Rs 27.15 crore were handed out in the form of ESOPs to employees.

Further, CRED recorded Rs 59.14 crore as “Direct Costs” during FY20. It’s highly likely these costs represent the cost of transactions processing incurred by the company while providing the free credit card payment service to its users. These costs grew by 5.5X as compared to Rs 10.8 crore spent during FY19

Information technology and communication expenditure (including server costs) amounted to Rs 30.3 crore during FY20, growing 4.4X from Rs 6.93 crore in FY19. The company shelled out Rs 25.8 crore on legal fees during FY20, 469% more than Rs 5.5 crore it spent on the same during FY19.

Another Rs 4 crore was paid out as rent for the leased office building, pushing the net cash outflow from operations to nearly Rs 396 crore in FY20, up 3.3X from outflows of Rs 118 crore in FY19.

During FY20, CRED posted an annual loss of Rs 360.3 crore, ballooning 5.9X from the Rs 60.87 crore it lost in FY19. With an abysmal EBITDA margin of -1979.5% during FY20, the present cash burn appears tough to sustain and the company will have to work on its collections.

Working in this direction, the DST Global-backed startup has created two subsidiaries namely Dreamplug Advisory Solutions and Dreamplug AA Tech Solutions to venture into investment advisory and account aggregation business in what appears to be a step to generate revenue in fiscal 2020-21. 

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