PhonePe has been dominating the unified payment interface or UPI ecosystem since the beginning of this year with a significant lead over its closest rival Google Pay. The company was also ahead of its competitors during the last four months of FY21 and that clearly reflects in its revenue numbers from the fiscal year ended in March 2021.
The Bengaluru-based payments firm managed to scale up its collection from operations by 85.5% to Rs 690 crore in FY21 from Rs 372 crore in FY20. While the majority of this revenue came from the provision of payments and allied services, PhonePe also collected Rs 3.85 crore from its insurance business.
Employee benefit cost blew over 2X while marketing cost shrinks 47%
When it comes to expenses, employee benefits emerged as the largest cost centre for the company, accounting for 50.3% of the annual costs. This cost grew 2.6X to Rs 1,235.2 crore in FY21 from Rs 480.3 crore in FY20. Importantly, Rs 842.7 crore or 68.25% of these payments were via employee stock options.
Apart from its own employee base, the company also employs external contractors. It spent 11% more on third-party labour to Rs 230.5 crore during FY21 against Rs 208.5 crore in FY20.
During the fiscal marred by the COVID 19 pandemic, the company scaled back its marketing and promotion activities significantly. Such costs shrunk by 47.4% to Rs 535 crore in FY21 from Rs 1,016.6 crore in FY20.
The payment processing fee incurred by PhonePe was also reduced by 28% to Rs 108.5 crore in FY21 from Rs 150.2 crore in FY20. Moreover, customer support costs have also been reduced by 34.6% to Rs 35 crore while information technology costs remained somewhat stable at Rs 89.8 crore during FY21.
Importantly, the gross value of related party transactions entered into by the payment firm stood at Rs 1,910 crore during FY21. This includes cross charge of the ESOP expenses amounting to Rs 842.5 crore, which will be borne by PhonePe’s Singapore based parent, amongst other expenses.
Bottomline: Total loss remains stable at Rs 1,728 Cr in FY21
In total, PhonePe India’s total expenses for the fiscal ended in March 2021 stood at Rs 2,456 crore in FY21, 11% more than annual costs of Rs 2,203 crore during FY20. On a unit level, it spent Rs 3.56 to earn a single rupee of operating revenue in FY21.
Losses for the year stood somewhat stable at Rs 1,728 crore during FY21, while EBITDA margins have improved slightly to -219.9% for the same period. As of March 2021, PhonePe’s balance sheet sported outstanding losses of Rs 6,329 crore.
While PhonePe has managed to control expenses and record an impressive 85% growth in collection, the company’s losses need to be checked as it bled profusely in FY21. According to experts tracking the digital payments landscape, making money from payments is challenging and PhonePe’s diversification into wealth management and inevitable entry into lending would only fetch sizable revenue in coming years.
National Payment Council of India (NPCI) is also set to regulate the UPI market share and this is bound to impact PhonePe’s dominance in the UPI ecosystem. This will also prevent the battle of grabbing market share and may potentially bring down losses for the Flipkart-owned company by reduced spending on marketing and cashbacks.