Lendingkart’s losses mount 7X in FY22 while scale grows 24%

After a flat FY21, Lendingkart has managed to grow around 25% and crossed the Rs 600 crore revenue threshold during the last fiscal year (FY22). However, this growth has been accompanied by a steep rise in losses which ballooned 7X in FY22.

Lendingkart’s revenue from operations grew 24.4% to Rs 616 crore in FY22, according to its consolidated annual financial statements with the Registrar of Companies (RoC).

The platform offers loans to small and medium businesses and it mainly generates revenue via interest income. This interest income accounted for over 92% of total operating revenue in FY22 which surged 18.4% to Rs 570.6 crore in FY22.

During FY22, the company collected another Rs 45.4 crore from various sources such as commission, advertisement, and gain on the assignment of loans. The commission income includes the commission that the company earned through its new program 2gthr (together, for the uninitiated). 2gthr provides co-lending services with banks and non-banking financial corporations (NBFCs).

Founded in 2014, Lendingkart runs four products: 2gthr - a retail lending marketplace, Xlr8 - a DSA channel partner management solution, Cred8 - cash-flow-based MSME underwriting and Collect10 - a collection intelligence platform. As per Lendingkart, it had disbursed Rs 2,747 crore of unsecured loans in FY22 against Rs 1,098 crore in FY21. In FY20, this figure was Rs 2,365 crore.

Besides operating income, the company also registered Rs 26.7 crore as other income, mainly from interest on fixed deposits and insurance claims pushing total revenue to Rs 643 crore during the fiscal year ending March 2022.

Moving over to the cost sheet, provisions, and write-offs of loans turned out to be the largest cost center for Lendingkart which formed nearly 47% to its total expenditure. This cost ballooned 2.3X to Rs 414.7 crore in FY22 from Rs 177.7 crore in FY21.

Finance cost was found to be another major expense during the last fiscal year which accounted for around 27% of total expenditure. This cost increased 17.2% to Rs 239 crore in FY22 from Rs 204 crore in FY21. It’s worth noting that the company raised sizable debt in FY22 to lend and clear dues. These factors appear to be a primary reason for the surge in finance costs.

Employee benefit expenses went up 13% to Rs 71.86 crore in FY22 which includes Rs 8.81 crore of ESOPs expenses. Importantly, the company separately booked another Rs 33 crore as capital expenditure in employee benefits, which is used by Lendingkart for the development of their new platform 2gthr.

Other expenses such as training recruitment (service charges of outsourced employees) and advertising cum promotional expenses increased 23% and 61.3% to Rs 8.65 crore and Rs 13.16 crore respectively during FY22. Commission expenses paid to sourcing partners and collection agencies shot up around 4.8X to Rs 59.16 crore.

Provisions for doubtful debts and finance costs led Lendingkart's overall cost up by  65.2% to Rs 889 crore in FY22. On the back of spiked costs, the company’s losses ballooned over 7X to Rs 203 crore in FY22 as compared to Rs 28.4 crore in FY21.

Coming to ratios, Lendingkart’s EBITDA margin and ROCE worsened to 2.95% and -0.48% in FY22. On a unit level, it has spent Rs 1.44 to earn a rupee.

Lendingkart’s financial performance in FY22  has been rocked by the high provisionings and write-offs on loans, something not unexpected as it tries to crack a tough category like unsecured loans to businesses. Even personal loans and credit card loans, the mainstay of unsecured loans in the consumer category are expected to generate bad loans of 6% or higher, which necessitates the high interest rates. For Lendingkart,  assuming it stays committed to the model, one would have to assume these higher provisions are the cost of learning how to work out a profitable model in this market. It also seems to have found a new model through 2gthr which allows the company to co-lend with banks and NBFCs, presumably leading to some risk sharing too. However, this model is yet to be proven and achieve considerable scale. 

SMEs have been a remarkably tough nut to crack for fintechs, mainly due to a vast underappreciation of the challenges they face and the reluctance to adopt new processes. However, lending in general is expected to be a profit-generating business quickly, especially in the business category. Unsecured loans, however, are a new beast altogether. Some companies including SoftBank-backed OfBusiness and Kissht have shown profitability in the SMEs lending space quickly, but these have been backed with deep knowledge about the customers, besides the fact that they are possibly financing customer purchases done on their platform in most cases. This has enabled stronger and entrenched relationships which customers don’t want to rock with a default.