Book keeping app and lending platform Khatabook has managed to come out of pre-revenue stage and grow its scale to the tune of 4X in FY22. However, the company’s losses also surged 3.3X and went past the Rs 100 crore mark.
Khatabook’s revenue from operations jumped 4X to Rs 71 crore in FY22, as per its annual financial statements with the Registrar of Companies (RoC).
For the uninitiated, Khatabook runs a digital ledger app that helps micro, small, and medium enterprises track transactions. It claims more than 10 million monthly active users. Software development and consultancy fees were the main sources of revenue for Khatabook which grew 4.8X to Rs 58 crore in FY22. Collection from utility solutions such as convenience fees and financial services increased 2.6X to Rs 13 crore in FY22.
Importantly, 77.5% of the operating revenue comes from the export services provided to its parent company: Kyte Technologies Inc. The company’s income from interest on deposits and gain on investment surged 3.5X to Rs 7 crore.
On the cost side, employee benefits expenses were the largest cost center for Khatabook and formed 53% of the overall cost. This cost escalated 2.7X to Rs 101 crore in FY22 and also includes Rs 16 crore expenses on ESOPs.
Payment gateway charges increased 42% to Rs 17 crore in FY22 while contractor charges shrank 29% to Rs 12 crore. The company spent another Rs 12 crore on advertising and promotion which pushed the overall cost by 73% to Rs 189 crore in FY22. With a sharp spike in expenses, its losses soared 3.3X to Rs 111 crore in FY22.
On a unit level, Khatabook spent Rs 2.66 to earn a single rupee in FY22.
During FY22, the company had enough money in the bank to chase scale as it scooped up $100 million in a Series C round at a valuation of close to $600 million. Khatabook also took steps to focus on its core bookkeeping business and shut down its e-commerce enablement app MyStore. The company has also been betting big on its lending vertical and it’s likely to be the anchor revenue-generating source for Khatabook in the coming years.
Scale wise, Khatabook emerged as the top player among its arch-rivals including Lightspeed-backed OkCredit and Sequoia-funded Bikayi.
Khatabook recently said that the firm plans to scale up its financial service with digital lending offerings and paid SaaS service offerings. It expects to clock a loan book size of Rs 1,000 crore in the next 12 months with the new offering as the company eyes profitability in the next 18-20 months.
The push for lending is a no brainer especially when the firm has already discovered the limits of paid services to its targeted users. Lending, while having obvious potential, is not without its risks in this segment, and margins are unlikely to be very high. Plus a lending-driven model might not be innovative enough for fresh fundraising with multiple payment firms latching on to the same model for real profits. Its demand for regular infusions of capital in initial years will also be a challenge in a worsening funding climate.
The bookkeeping business, thanks ironically to Khatabook’s success in building up a large user base remains a potential drain on resources. With strong listed firms like Indiamart increasingly encroaching into this territory too through acquisitions, the going will remain tough to preserve or grow this market. We believe if Khatabook is to write a good story, it will need to spring a happy twist in the tale sooner than later.