The curious case of Uber India’s Rs 721 Cr profit jump in FY20

Ride-hailing businesses across the globe have taken a big hit due to the coronavirus pandemic. India is no exception with Uber and Ola yet to achieve their pre-covid peaks. 

While the numerical impact on their accounting books will be seen when they will file their financial statements for FY21, Uber India's annual profits saw a whopping jump of 2873% to Rs 720.74 crore in FY20 from Rs 24.2 crore in FY19, regulatory filings show.

A phenomenal jump in any business but then as they say -- the devil is in the details.

Most of the profit on books is due to the sale of Uber Eats to Zomato and booking of Deferred Tax Charge or DTC which inflated the annual profit multi-fold.

Uber had offloaded its food delivery vertical to Temasek-backed Zomato in February last year for a reported Rs 1,493.5 crore or $206 million and were allotted shares of Zomato Private Limited for the same.

Post this buyout, Uber India booked a profit of Rs 703.4 crore on its discontinued operations (97.6% of annual profit in FY20) for the fiscal ended in March 2020. 

Further, the company also booked DTC amounting to Rs 593.93 crore for the same period. When adjusted with loss before tax adjustments of Rs 567.8 crore with DTC, it resulted in a profit of Rs 17.34 crore from its continuing operations.

Last week, Entrackr had sent a detailed questionnaire to Uber India but it declined to offer any comment.

Uber India’s auditor Price Waterhouse & Co has drawn a “Qualified Opinion”on the company’s annual statements citing Uber’s lapse in following the sections and regulations of the Companies Act, 2013. 

The auditors have also issued a disclaimer of opinion “citing we are unable to obtain sufficient appropriate evidence” on the company’s internal financial controls as eight-year-old Uber India has failed to put in place adequate financial controls.

The big point which cannot be avoided from the report is non-physical verification of property, plant and equipment and non-ascertainment of discrepancies between book records and physical verification of the property, plant and equipment. 

Uber India declined to offer comment on the above premises.

While the auditors have raised these issues in their report, the directors of the company claimed that the assets are located in various locations and they are preparing a detailed plan of each category of assets as per the report. 

Business operations during FY20 and the story in numbers

Uber derives its revenues primarily from drivers and restaurants' use of Uber's platform and related services, acting as a mediator for ride-hailing and online food ordering transactions. 

The company provides services such as on-demand lead generation, facilitation of payments from end-users to drivers and restaurants which fulfil the on-demand requests of its platform users. 

Looking over the FY20 numbers, we see that its revenue from operations dropped by 20% in the period before the lockdown was enforced. Uber India’s revenue from ride-hailing and food delivery operations dropped to Rs 719.06 crore in FY20 from Rs 892 crore in FY19.

While the operating revenues have dropped significantly, the company’s annual expenses shot up. Its total expenditure grew by 55.8% to Rs 1,342.6 crore in FY20 from Rs 856.5 crore in FY19. 

Employee benefit expenses made up almost a quarter or 24% of the total expenses incurred during FY20. These costs grew by 13% to Rs 320.5 crore in FY20 from Rs 283.7 crore in FY19. Security-related expenses also grew by 23.6 % to Rs 17.05 crore during the same period.

Advertisement and promotion was also one of the big cost factors for the company, making up 17% of the annual expenses. These costs surged by 36.4% to Rs 229.6 crore in FY20 from Rs 168.3 crore in FY19. Uber India also paid Rs 29.72 crore on rent and repairs along with utility payments of Rs 31.4 crore during FY20.

Some peculiar line items in the expense sheet were “Cost of Materials Consumed” worth Rs 361.2 crore and unexplained miscellaneous expenditure of Rs 213.8 crore. 

During FY20, Uber India spent Rs 1.87 to earn a single rupee of operating revenue as compared to Rs 0.96 spent for the same in FY19. 

Its EBITDA margins depleted from 11.71% in FY19 to -67.5% in FY20.

Looking at the financial performance of the company in FY20, one can see the depletion of operating margin primarily due to a surge in costs of operations and restructuring 0f its business operations.

Since Uber India had exited from the food delivery business, it appears to be in a better position to concentrate on its core business of ride-hailing. 

Also, its arch-rival Ola has been prioritising its EV business under a new entity - Ola electric. This could also work in the favour of Uber in the ongoing fiscal.