ADVERTISEMENT

How the KPMG report might affect Swiggy’s trust factor of reporting
H

The food delivery sector is a unique point of a startup's growth and destination. With a duopoly establishing with Zomato and Swiggy, challenges are being faced by both to stand out from the crowd. Even though one may face losses and all other consequences, it is still always to be played fair. As Swiggy enters if fiscal 2021, new problems arise as KPMG detects Swiggy's 2019 fiscal report's financial discrepancies.

Swiggy started as an online food ordering and delivery startup in August 2014. Today, it has more than 5,000,000 mobile app installations and is a common household name for anyone who wants to order food online. Throughout its online food delivery journey, Swiggy has established more than 25.000 restaurants and hired its fleet of local delivery boys, with more than 13 Indian cities, including Mumbai, Delhi, Bengaluru, Chennai, Hyderabad, etc. Their success may look like a night out, but like all the great ideas of the world, Swiggy was not born out of the blue. Instead, it was a co-founder’s journey that took them to Swiggy after several trials and mistakes (1). 

Swiggy is an online platform, popularly known for its mobile app, for ordering food from a wide range of neighborhood restaurants. By offering quick door-to-door food services in as little time as possible, Swiggy has become the first foodies choice. Swiggy’s idea of connecting local foodies to local restaurants gave the brand the advantage of an early mover. But the brand relies on restaurants and local delivery staff to expand the business. And the Company must pay incentives to local delivery boys to keep the business going. So Swiggy’s revenue stream comes from various sources (2) Swiggy is the only brand that continues to thrive and grow from the hyper-funding wave of 2014-15. Despite the fierce competition from Zomato, UberEats, and Foodpanda, Swiggy has successfully made its way to the food delivery area and has become a unicorn startup.

Swiggy’s financial record during fiscal 2019

After e-commerce and payment facilities, food delivery has become a very tactical game of deep pockets in India. And since much of the earnings in the food-tech space had flown to Swiggy and Zomato, the duo didn’t bring much joy as they blew profusely for the financial year of 2019. According to earlier reports, Zomato had a revenue of 1421 crore rupees with losses of 2000 crore. Swiggy filed its annual financial report for the period ending in March 2019, earning 72 percent of total operating income through the provision of marketplaces and food services. The remaining 18 percent and 10 percent of revenue came from providing ancillary services, respectively (3). 

In total, Swiggy recorded a two-time jump in operating revenue from 417 crores rupees in FISCAL18 to 1.2 crores rupees in fiscal 2019. Bangalore-headquartered Swiggy’s income from interest on deposits and mutual fund benefits rose 4.3 times from Rupees 39.5 crore in 2018 to 19 to Rupees 170 crore (4). Swiggy lost around Rs 60 to the IL crisis that shook the markets in September last year. IL was India’s leading infrastructure finance company until it ran out of money and defaulted on its lending to the creditors. However, the Company’s treasury department remained optimistic and acquired financial investments valued At 12767 crore rupees during Fiscal 2019 (5). 

In Fiscal 2019, the Company raised Rupees 7072 crore through the transfer of debentures, as the hunger for scale growth became crucial. Even after the suit, Swiggy’s capital spending increased 4.3 times to 3637.6 crores in fiscal 2019 from 841 crore rupees in 2018 to 19, and the rising cash burn was reflected all across their expenditure sheet. Employee benefits expenses almost tripled to 5372 crore rupees in the Fiscal year 2019 from 186.4 crore rupees in the fiscal year 2018 as the Company strengthened its workforce to chase scale. Key managers also saw their remuneration rise three times to 13.4 crore rupees in fiscal 2019 from Rs 4.2 crore Swiggy collectively paid to their leadership team during fiscal 2019 (6). 

Swiggy argues to influence, particularly in the food technology sector, with a 4x jump in inventory levels and a 2x increase in business revenue. While the Company has risen faster during the fiscal year 2019, its increasing losses significant that the scale has risen at a high cost. In August last year, Swiggy acquired a 100 percent stake in Mumbai based on a request for delivery startup Scootsy and had invested almost Rs 70 crore in the Company. The capital inflow helped the subsidiary based in Mumbai to grow but ended up with a loss of Rs 207 crore. Similarly, earlier this year, 31 crore rupees were also invested in the packed food startup Fingerlix.com, which lost another Rs 273 crore during the last fiscal year (7). 

 

Financial discrepancies

KPMG noted in its audit report the differences in the accounting methods of the online food firm Swiggy according to the information filed by Moneycontrol. It has given Swiggy what is known as a ‘reasonable view.’ The auditor’s role is to examine the Company’s books of accounts and state whether or not the books present a true and fair view for a given financial year. The auditor issues a good opinion when they are not confident or concerned about a particular aspect of the Company’s accounting methods and believes it goes against the law. Analysts think that this is the consequence of factual glitches and differing opinions over the law-the documents said. 

Swiggy’s investors, including Prosus Ventures (8), who are known as Naspers, Tencent (9)(10) Coatue Management, and many others, hold preferential stocks entitled to buyback. This right is aimed at protecting investors whenever the Company closes down. However, these shareholders have a right to purchase back, so they need to be categorized by law as a liability from the Company’s point of view, which Swiggy did not choose. According to KPMG’s report, “Such preference shares, which contain a right of buyback with the holders, must be accounted for at fair value.” As a result, the categorization and evaluation of the liability through profits and losses, the yield from such changes, the linked taxation effects for the year 31 March 2019 are missing.’ It is essential to mention this as a liability following Ind AS 32 and Ind AS 107.

However, the difference of opinion between KPMG and Swiggy, in this case, stems from how seriously a company takes technical matters and changes in the law. Traditionally, most Indian companies have followed Indian Generally Accepted Accounting Principles. However, from 2015 to 2016, Ind AS was introduced to increase Indian accounting to the internationally accepted and recognized International Financial Reporting Standards. Ind AS applied to private companies with a net value of over Rs 500 crore from 2016 to 2017. Many companies, especially startups, have continued to struggle to prioritize this transformation, as they have risen steadily over the timespan, focusing more on raising funds, investment management, and core business rather than accounting, which is gradually happening today (11). 

KPMG’s report also indicated that Swiggy then irrevocably voided investors’ buyback privileges to solve the whole problem for years to come. “After the balance sheet date, those rights were irrevocably waived by the majority preference shareholders who could initiate the alternative. Based on such a development and the Company’s legal advice as of the waiver’s date, the buyback provision is hardly enforceable nor actionable. Accordingly, the preference mentioned above shares will be categorized from the equity to the liability on the date of the waiver,” the report states. It also is up to the auditor concerned to give a reasonable basis upon it.

Swiggy representative said that in an email, “The audit qualification relates to the 2018-19 financial year and the previous benchmarks, as the Company has moved from the previous accounting standards to the IndAS. There are many differences between the two standards, specifically about the accounting treatment of financial instruments. The classification of equity vs. liability is a highly complex and often debated technical issue in the startup industry. In the case of Swiggy, given that the preferred shareholders had certain buyback rights, which they never intended to exercise, the rights were irrevocably waived by the investors.”

 

The pandemic struck present

Swiggy’s parent company Bundl Technologies Private Limited reported revenues of 2776 crore rupees for the financial year 2019 to 2020, an increase of 115 percent since the previous financial year, according to financial data accessed by the business intelligence platform Tofler. While Swiggy’s total tax expenditure was reported as 6545 crore rupees, its net loss amounted to 3768 crore rupees during the same fiscal year, making it a 61 percent increase from the previous fiscal year. Last year, Swiggy launched an essential and grocery delivery service called Swiggy Instamart. Currently living in Bangalore and Gurgaon, Swiggy claims to deliver orders less than 30 to 45 minutes throughout the day (12). 

The food delivery platform lost almost 261 crores on canceled orders and theft by the riders, a figure that hit two times during the last fiscal year. Legal and insurance costs increased from three times to 121 crores, while outsourcing costs increased three times to 71 crores during the fiscal 20. Communication and technology costs of 458 crores pushed net cash outflows from operations to 3841.4 crores during fiscal 2020, up 63 percent from 2346 crores in Fiscal 2019. While EBITDA margins have improved from a negative 180 percent in fiscal 2019 to a negative 122 percent in Fiscal 20, Swiggy will have to work harder to compete with its main rival Zomato, which operates significantly better margins and has tighter control over its purse strings.

+ posts

My passion is Reading and writing. Basically, an optimistic introvert. Always striving to be better. Writing as a passion leads me to become stronger and focused.

Disclaimer: The views, thoughts, and opinions expressed in the article have been curated for our audience and does not warrant a 100% accuracy. All the information mentioned in the article is subject to change according to the changing viewpoints. Feel free to reach us at [email protected] for any change or copyright issues.

Note: If you buy something via a link on this page, we might earn a small commission on it.

Abraham George
Abraham George
My passion is Reading and writing. Basically, an optimistic introvert. Always striving to be better. Writing as a passion leads me to become stronger and focused.

Leave A Reply

Please enter your comment!
Please enter your name here

related stories

The china-based threat activity group, RedEcho, targets at least a dozen Indian organizations, including the Indian power sector.

Report: Chinese Hacker Groups Target Indian Organisations Amid the Border Tension

0
Since mid-2020, Chinese State-sponsored groups intruded into the computer networks of at least a dozen Indian state-run organizations, mostly power utilities and load dispatch...
The SEC stated that it has temporarily halted trading in 15 companies amid concerns that their stock prices were artificially inflated.

US Watchdog Halts Trading of 15 Companies, Sharpens Gaze on ‘Suspicious Social Media Activities’

0
The United States security regulators suspended trading in the securities of 15 companies on Friday because of 'questionable trading and social media activity.' It...
Facebook recently launched its short video entertainment format platform known as bars that cater to a specific community called rappers.

How the launch of Facebook’s Bars will be a game changer for aspirants in...

0
The world's hands at entertainment are getting saturated, and there is no doubt about it. This market's global landscape had changed dramatically since the...
The IPO season is here, and many companies have reached for the big deal on the NYSE. DigitalOcean also aims to reach the NYSE boards and introduce their IPO by going public.

DigitalOcean goes public in its first ever IPO aiming for the NYSE

0
With a range of rationales, digital transformations are carried out. Some stem from the need to replace IT systems that have reached the end...
All successful companies need better tools. Here is the list of today's best product management tools to cover all your business requirements.

Essentials Project Tools You Need in 2021

0
Project managers and product managers share similar work responsibilities, which is beyond just sharing similar titles. Both roles work in tandem to successfully deliver...
The Indian public sector is undergoing a new shift. Since time, many of these sectors have worked for the government and made the extra dime public.

How the Privatisation move might put the Modi government afront in public benefit

0
A crisis on an unprecedented scale is facing the Indian banking sector. When more facts are brought to light, the problem becomes peculiar. You...
Disruptors have been challenging big logistics players for years and the shift towards ecommerce has created a fertile ground for logistics startups.

Transformation of Indian Logistics Tech Ecosystem

0
The logistics industry is the backbone of every economy. The growth of the Indian ecommerce sector enabled startups dealing in logistics to expand their...
India's healthcare sector is booming, thus giving many opportunities to establish a unified system that contributes to better health.

India’s healthcare startup ecosystem is booming, as Government prioritises on better systems

0
India is a country that is democratic and It is the government's responsibility to provide primary health care for individuals. India is a large...
ADVERTISEMENT