In 2021’s IPO bandwagon, MobiKwik seeks to shrug off the Covid blues to thrive, yet again

Gurugram-based payments solution firm MobiKwik became the second consumer internet company to file their Draft Red Herring Prospectus (DRHP) this year and will likely aim for an IPO to raise Rs 1,900 crore later this month. Along with the DRHP, the company has also filed results for the fiscal year ended March 2021. The results clearly reflect the adverse effect of the Covid-19 pandemic on its business during FY21.

MobiKwik generates its revenue primarily from operations across three revenue segments namely: consumer payments business, payment gateway services and revenue earned from its Buy Now Pay Later (BNPL) financial product. The disruptions caused by the pandemic adversely impacted all three of these revenue verticals segments.

Consequently, MobiKwik’s consolidated Gross Merchandise Value (GMV) dropped by 42.5% to only Rs 3,040.07 crore in Q1 FY21 from Rs 5,287.8 crore processed in Q4 FY20 and failed to cross the Rs 5,000 cr mark during the rest of the quarters during the last fiscal. However, the firm does report that it increased to Rs 6469 cr in Q1 of FY22.

MobiKwik’s revenue from operations suffered a 19.1% drop to Rs 288.6 crore in FY21 from Rs 356.7 crore in FY20. It made 52% of its income from the consumer payments vertical which was reduced by 9% to Rs 209.44 crore in FY21 primarily due to the lower level of GMV churn caused by Covid disruptions.

BNPL is the second biggest revenue vertical, accounting for 20.7% of its earnings during the last fiscal. Revenue from this segment reduced by 19.6% to Rs 59.81 crore in FY21 as credit disbursals suffered during the first half of 2020.

The sharp revenue drop from the crowded BNPL vertical is concerning as even smaller firms in the segment such as ZestMoney have managed to grow instead, with Zest Money anticipated to cross Rs 100 crore in revenue in FY21 from Rs 72 crore in FY20. According to experts, the need for short term credit has increased multifold during the pandemic (FY21).

Predictably, revenue earned from the payment gateway segment suffered the most, contracting by 62.2% to only Rs 19.32 crore. MobiKwik earned another Rs 13.7 crore in the form of financial income during FY21.

Moving over to the expenses sheet, we see that payment gateway expenditure is the largest cost centre for the fintech company, accounting for 37.4% of the annual expenditure during the last fiscal. These expenses are directly proportional to the GMV processed by the company and dropped by 16.7% to Rs 151.2 crore in FY21 from Rs 181.5 crore spent in FY20.

In 2020-21, MobiKwik cut back on customers' incentives and advertising which made up 21.50% of the annual costs incurred by the company. These costs dropped by 7.6% to Rs 86.74 crore in FY21 from Rs 93.84 crore in FY20.

The company also provides financial guarantees for bank loans taken by users on its BNPL platform and books the related costs. Such expenses grew by 14.5%  to Rs 58.4 crore in FY21.

Employee benefit expenditure incurred by the company accounts for only 13% of the aggregate costs incurred during the year. These dropped by 19.3% to Rs 53.03 crore in FY21, due to a significant decrease in employee stock options expense in the last fiscal year.

Another Rs 8.5 crore were booked under finance costs and depreciation which took the company’s annual expenditure to Rs 404.07 crore in FY21, dropping by 11.1% from Rs 454.4 crore spent during the last fiscal year.

At a unit level, MobiKwik spent Rs 1.4 for every rupee of earned revenue in FY21.

The company lost Rs 111 crore during FY21, an 11% increase over the Rs 100 crore losses during the previous fiscal year and its EBITDA margin worsened by 1080 BPS from -22.9% in FY20 to -33.7% during FY21.

As one would expect, its auditors have expressed a qualified opinion on the company’s balance sheet due to contravention of Section 42 of the Companies Act 2013.

Out of Zomato, Paytm and MobiKwik, MobiKwik is the only company categorised as a “promoter managed” company. The promoters are offloading stake worth Rs 192.15 crore in the offer for sale portion of their Rs 1,900 crore public offer.

While the revenue decline in FY21 can be attributed to reduced economic activity due to the pandemic, the mounting losses are a serial addition to previous years, resulting in erosion of net worth during the last three years. Its balance sheet shows cumulative losses of Rs 866 crore at the end of FY21.

For MobiKwik, the losses are not the only weak point in its pitch, considering the similar situation of its IPO predecessors, Zomato and Paytm. The big issue is its weak standing in the pecking order for each of its business segments. Considering the nature of the internet economy which tends to take a winner takes all shape, with space for a dominant no 1 and a number 2 at most,  investors will need to look beyond the hype to consider if MobiKwik has what it takes to not just survive but thrive. It has done the former well so far in its existence but faces a truly uphill battle to actually turn a profit, considering the competitors it has to go through.  

What investors should know is that right since 2009, when its promoter founders, the husband and wife duo of Bipin Preet Singh and Upasana Taku started the firm as a mobile recharge business, it has come through multiple upheavals and situations to land on its feet and seek it’s the toughest validation yet, a vote of confidence from the public markets.